Getting on Board: a Governance Resource Guide for Arts Organisations

Getting on board: a governance resource guide for arts organisations

prepared by graeme nahkies for creative new zealand Contents:

FOREWORD 05

SECTION 1.0 INTRODUCTION 07 1.1 Creative New Zealand governance support 08 1.2 The need for leadership and effective governance 09 1.3 Terminology 10 1.4 Guidebook structure 10 1.5 Sample policies 11 SECTION 2.0 TYPICAL GOVERNANCE CHALLENGES 13 SECTION 3.0 THE ROLE OF THE GOVERNING BOARD 17 SECTION 4.0 THE LEGAL AND ACCOUNTABILITY FRAMEWORK 19 SECTION 5.0 STAKEHOLDER RELATIONSHIPS 23 SECTION 6.0 POLICY LEADERSHIP 27 6.1 What are policies and how are they made? 28 6.2 Governance policies 29 6.3 Developing, adopting and reviewing governance policies 29 6.4 The chief executive’s own operational policies 30 SECTION 7.0 DETERMINING THE ORGANISATION’S STRATEGIC DIRECTION 31 7.1 The need for boards to give direction 32 7.2 Tools for strategic thinking 35 SECTION 8.0 BOARD–CHIEF EXECUTIVE RELATIONSHIPS 39 8.1 Appointing the chief executive 40 8.2 Making clear the extent of delegation to the chief executive 44 8.3 Constraining the chief executive’s freedom to act 44 8.4 The chief executive/board chair relationship 46 8.5 Evaluating the chief executive’s performance 46

SECTION 9.0 MONITORING AND EVALUATING RESULTS AND ACHIEVEMENTS 49 9.1 Measuring outcomes not effort 50 9.2 Monitoring systematically 50 9.3 Providing the board with the right information 51 9.4 The board’s organisational ‘dashboard’ 53 9.5 The chief executive/board chair relationship 54

SECTION 10.0 A STRATEGIC RISK MANAGEMENT FRAMEWORK 55 10.1 What is risk? 56 10.2 Strategic risk management 57 10.3 Clarifying the board’s responsibility for risk 58

SECTION 11.0 THE BOARD’S FINANCIAL RESPONSIBILITIES 61 SECTION 12.0 THE BOARD’S OWN PROCESSES AND PRACTICES 65 12.1 Board membership 66 12.2 Conflicts of interest 67 12.3 Board meetings 68 12.4 Typical agenda distractions 69 12.5 Develop a longer term view of the board’s priorities 70 12.6 Board committees 71 12.7 The role of the chairperson 73 12.8 Board performance evaluation 74

12.9 Succession planning 75

SECTION 13.0 RESOURCE MATERIALS 77 13.1 Books 78 13.2 Periodicals 81 13.3 Web sites 82

03 04 forward:

Kia ora koutou

In April 2001, Creative New Zealand published the first edition of Getting on Board: a governance resource guide for arts organisations written by Graeme Nahkies, Director, BoardWorks International. Since that time, Creative New Zealand has continued to promote the development of governance capability in the arts sector by means such as special forums promoting governance skills development. To support that process a second updated and extended edition of Getting on Board was published in 2003. It has proved as popular and as useful a resource for the many generous members of the community who make a contribution by serving on boards. This edition, while still including the fundamentals of good governance practice described in the earlier editions, also includes new material on a number of topics such as performance monitoring, agenda management, chairing the board and succession planning. Creative New Zealand anticipates that this expanded tool kit will further assist board members to confidently do their jobs even better. Since the publication of the 2003 edition, Graeme Nahkies has continued to facilitate governance- related workshops both for the board members and staff of Creative New Zealand’s recurrently funded organisations and for community arts organisations. Feedback and input from arts sector representatives during those workshops has guided this fine-tuning. My warm thanks to the external readers, the organisations that supported this initiative and especially to Graeme for his expertise and knowledge, as well as his ability to relate generic principles to the New Zealand arts environment. Heoi ano

St e p h e n W a i n w r i g h t Chief Executive Creative New Zealand November 2008

05 [ credit www.gowlangsfordgallery.co.nz

06 Judy Millar, Untitled, 2007. Image courtesy of

] Gow Langsford Gallery. [ credit Robert Catto www.catto.co.nz Toni Huata and Mina Ripia perform as a part of Tama Tu Tama Ora, presented by the 2008 in arts organisations in ‘performance’ easier. Asarts practitioners improve as inmanyother parts of The leadershipofarts organisations inNewZealand– section1 introduction

] New Zealand International Arts Festival. the governance andmanagement behind there ismorepressureon to lift the their gameas world -isnot gettingany their those involved well. the scenes 07 creative new zealand 1.1 governance support

The leadership of arts organisations in New Zealand – Starting in May 1999, the Arts Board of Creative as in many other parts of the world – is not getting any New Zealand commissioned Graeme Nahkies from easier. As arts practitioners improve their ‘performance’ BoardWorks International, a specialist trans-Tasman there is more pressure on those involved in the governance consulting group, to assist it in a governance governance and management behind the scenes in research project that would ultimately support and arts organisations to lift their game as well. strengthen the governance performance of arts This is not particular to the arts sector. Since organisations throughout New Zealand. the late 1980s there has been a growing public interest The first stage, involving a cross-section of in, and understanding of, the importance of the 10 leading arts organisations, was exploratory – performance of the governing board of any organisation. a reconnaissance to identify the organisations’ approach As each new edition of Getting On Board has been to governance and to understand their principle prepared, the subject of effective corporate governance governance challenges. Key issues identified in the has continued to be a hot topic. It is clear that the reconnaissance stage were then explored further, expectations stakeholders have of boards and directors drawing on a wider range of views and experiences. are ever increasing. As a result, there has been an This phase was extended to the board members and accompanying increase in the breadth and depth of the senior staff of all 31 organisations that were, at that tasks in which a board and its individual members time, recurrently funded by Creative New Zealand. must be competent. Two other organisations that were not recurrently For nearly 10 years now, Creative New Zealand funded by Creative New Zealand also took part. has encouraged arts boards in New Zealand to take This enabled preliminary conclusions to be drawn up the challenge of providing effective governance about governance performance in the arts sector in leadership and many have responded positively and New Zealand and to identify key areas to which future effectively to this challenge. However, one size does not support and development initiatives should be targeted. fit all; each arts organisation and its board are faced with The development of the first edition of this guide was the need to find an approach to the governance of their the third stage. During 2000 a draft was presented at a enterprise that works. Nor is this a ‘one-hit’ exercise. series of workshops around New Zealand. The feedback As board membership and organisational circumstances from those sessions was reflected in the first edition change, so do the governance challenges. Many of the of this document. performance challenges facing arts boards are, however, Since then, each year, Creative New Zealand has generic. They appear in a wide range of international arranged for governance development workshops to be and organisational contexts and occur irrespective of held around the country. The content of these workshops underlying organisational sector, purpose or and the discussion among participants has strongly characteristics. There is much knowledge and contributed to the evolution of the material in this experience that can be pooled and shared to the publication. This approach is consistent with the original advantage of all boards. idea that the contents of the guide should be updated and added to progressively.

028 the need for leadership 1.2 and effective governance

Arts organisations, whatever their art form, size or The crucial starting point for the board of any arts scale, operate in a complex and demanding organisation might well be a conversation about the environment. In a positive sense there is a growing standard of governance performance that would match appreciation of the value of the arts not only to the that expected of the artistic/service ‘delivery’ part of enhancement of the quality of life in New Zealand but the organisation. Just what those standards should be also to the expression of a unique national identity and and how they should be attained is not always clear. spirit. Public and practitioner expectations of artistic Many who come to the governance of arts organisations achievement are ever increasing. Less positively, the have had little experience in any governance role. increasingly diverse and high-quality artistic initiatives Others, for example, may be experienced directors in, in New Zealand are competing for support from the say, the business sector, but often find that their public, patrons, sponsors and the Government which, experience does not always transfer easily into the in financial terms at least, is inherently limited. Arts not-for-profit arts sector. organisations often seem to be locked in a never-ending Concepts of best practice change over time. struggle to maintain financial solvency, a problem by Good governance in any sector is a work in progress but no means confined to New Zealand. particularly so in the arts sector. Many arts organisations Therefore, every organisation created and have found structures and processes that work for them maintained for the purpose of supporting serious artistic at a point in time, but as an organisation grows, its achievement must be increasingly efficient and effective. markets or its people change, it can just as suddenly Not only must the artists attain the highest possible find that it needs to change its approach. standards of creative achievement, but those who While each organisation needs to finds its own way, support the development and delivery of artistic it does not need to do so in an information and excellence, like the board, must be equally effective experience vacuum, hence the production of this in their contribution. resource guide. It is not, and cannot, be a recipe book Governance excellence is not easily achieved in for good governance – there are no perfect solutions or any organisation. Some of the very real challenges are universal prescriptions. However, it is hoped that its described in Section Two. In arts organisations the description of some basic principles will stimulate arts challenges are, in some respects, even greater. The focus boards to discuss and review their own governance of attention is understandably on the creative endeavour performance. It is intended to challenge boards and their itself and it is often difficult to attract committed board members to be more conscious and deliberate in the members with the time and the appropriate skills to way they govern their organisations and, perhaps, serve on arts boards. This is made more difficult because, to take further steps to enhance their effectiveness. to many in arts organisations, their board is little more It is not meant to be self-contained, but a guide, both than a necessary evil – something, for example, to meet to ways of thinking about the responsibility and work legal requirements or to assist in raising the funds of the board and to other resources. needed just to allow the creative activity to take place. This means board service can, at times, be stressful, frustrating and unrewarding. Despite that, many people throughout New Zealand give unstintingly to the arts through their board service. The basic premise of this publication is that, in spite of the challenges, poor governance performance is neither inevitable nor should it be acceptable. Those who volunteer, or are persuaded to serve on the boards of arts organisations, do not set out to govern poorly and many do not. It was apparent in the field research undertaken for the first edition of this publication and the experiences that workshop participants have shared in the succeeding years, that many arts organisations in New Zealand continue to put the spotlight on their governance performance and to seek new and better ways of governing. Most of the typical governance challenges in arts organisations can be met in a positive manner with great benefit to all associated with the arts.

09 1.3 terminology

For the purposes of this document the following definitions or terminologies are used:

• Governance arts world, the term ‘director’ is more commonly Governance in this context is defined as: used to describe the job of the person who, for The way in which a governing board fulfils its example, directs plays or manages a gallery. leadership and stewardship responsibilities by To avoid confusion, therefore, the terminology setting direction, policies, priorities, performance board member is used throughout this document. expectations and monitoring, and ensuring • Chief executive achievement consistent with these in order to This term is used to refer to the person appointed exercise its accountability to key stakeholders. by and directly accountable to the board for the • Governing board organisation’s performance. Where the board splits This guide concentrates on the role of the the responsibility between two or more people, governing board – that part of the organisational other terms (e.g. the general manager and the architecture that has final responsibility for the artistic director) may be used. Some readers of this performance of the organisation. A number guide may be associated with organisations that do of arts organisations in New Zealand also have not have professional management. It is nevertheless a wide array of other boards and organisational important for the boards/committees of such parts which contribute to meeting various needs organisations to make a clear, conceptual distinction – advisory boards, Friends organisations, special between the governance and operational functions purpose committees, foundations etc. For the most and to ensure that the governance function is part, however, while such elements should be not neglected. considered part of the overall governance • Organisation structure, it is the governing board that has final The generic terminology applying to an arts responsibility for the ultimate success of organisation also varies in practice. It is often the enterprise. referred to as a ‘company’ either because of its legal • Board member status (it is incorporated under the Companies Arts organisations have different legal structures Act 1993), or for traditional artistic reasons some of which might suggest the use of the term (as in the ballet company). In this document we commonly used in the commercial sector referring have adopted the term organisation as the to the members of a board as ‘directors’. But in the generic expression.

guidebook 1.4 structure

This guide is structured to allow the reader to readily Some boardroom tools and techniques are offered to find a topic of interest and obtain a general comment on assist boards to deal with particular aspects of their job. how such aspects of the board’s role and responsibilities At the end of each section there is a series of discussion might be addressed. The early sections provide an topics, provided as a catalyst for board discussions about overview of typical arts governance challenges and later the matters covered. sections address more specific issues. Where Additional resources are identified in the form of appropriate, sample governance policies illustrate the books, periodicals and web sites. Readers are points made. encouraged to add their own resources to this guide.

10 sample 1.5 policies

The development of a coherent set of governance It should also be acknowledged that since the publication policies creates an essential infrastructure for any of the first two editions of this guide it has become more board to guide its stewardship of the organisation. common for boards, particularly in the business sector, At appropriate points through the text a selection of to adopt a board ‘charter’. While the typical board draft governance policies are offered for evaluation charter covers, in part, the same ground that a and possible adoption. These have been tested in practice governance policy manual would, the format is different on a wide range of organisations in New Zealand, and some boards may wish to consider this alternative Australia, the US and elsewhere. approach. A simple web search will identify many There are many different ways of developing and real-life examples for examination. The following using governance policies. To assist boards to get easy Australian publication has documented in great detail access to a widely published approach to governance what a board charter might contain. policy development, the policy framework described Ge o ff r e y Ki e l and Ga v i n Ni c h o l s o n . here, and many of the sample policies used for Boards That Work. illustration, are derived from the work of John Carver, Sydney. McGraw-Hill Australia. 2003. the originator of the Policy Governance® model. Users of these resources who wish to explore Wherever sample policies or charters are sourced from, Carver’s work and such policies further are boards are encouraged to work systematically (line by particularly recommended to read: line) through any that it is considering adopting. Be wary of mindlessly adopting someone else’s Jo h n Ca r v e r . Boards that Make a Difference. formulations. Adapt them and add or delete content San Francisco. Jossey-Bass. Third Edition. 2006. until you have something that will provide a starting Jo h n Ca r v e r and Mi r i a m Ma y h e w Ca r v e r . framework for governance policies applicable and Reinventing Your Board. designed for your own organisation. Do not adopt any San Francisco. Jossey-Bass. 1997. policies for which the underlying principles of good governance are not clear. Make sure that the board Jo h n Ca r v e r with Ca r o l i n e Ol i v e r . clearly understands why it is adopting any policy and Corporate Boards that Create Value: the expected consequences of its application. Governing Company Performance from the Boardroom. Provided it has a comprehensive and coherent policy San Francisco. Jossey-Bass. 2002. framework as a starting point the board can add further Ca r o l i n e Ol i v e r (Ed). policies as the need is identified to address other The Policy Governance Fieldbook: Practical Lessons, governance issues. Tips and Tools from the Experiences of Real-World Boards. San Francisco. Jossey-Bass. 1999.

Ma r i a m Ca r v e r and Bi l l Ch a r n e y . The Board Members Playbook: Using Policy Governance to Solve Problems, Make Decisions, and Build a Stronger Board. San Francisco. Jossey-Bass. 2004. Draft board policies for not-for-profit organisations can also be obtained from the US-based BoardSource organisation (www.boardsource.org). See particularly:

Ka t h l e e n Fl e t c h e r . The Policy Sampler: A Resource for Nonprofit Boards. Washington, BoardSource, 2000.

11 [ credit Robert Catto www.catto.co.nz

12 Village People by Victor Rodger is performed at Show & Tell 2008 for the 2010 New Zealand

] International Arts Festival. TYPICAL GOVERNANCE CHALLENGES section2

As arts boards in New Zealand have increasingly turned their attention to thinking about their governance performance, they have identified a number of concerns. Many of these are not unique to arts bodies. Similar challenges are apparent to a greater or lesser degree in the governance of many other types of organisations both in New Zealand and elsewhere. Some common governance challenges are outlined below.

13 typical governance 2.0 challenges

• Complex/confusing structures Many arts organisations have multi-component Another accountability problem stems from governance structures which have developed the existence of ‘two-headed’ authority in some ‘Lego-style’ as additional pieces were added to arts organisations, where more than one meet different circumstances. Usually such staff member (e.g. both administrative and artistic additions are made to accommodate the needs heads) is appointed by, and reports directly to, or expectations of different stakeholder groups. the board. This dual responsibility for Another manifestation of this problem is in those organisational achievement may easily place a organisations that have enlarged the size of their strain on an arts board (and one or both of the boards in order to try either to access additional heads) by dividing its attention and making it more financial resources, or to obtain a complete difficult to hold anyone accountable for representation of stakeholder interests around organisational performance. It can also put the the board table. The larger the board the more board in the position of having to referee disputes unwieldy it is likely to be and the more likely between individuals holding those different roles.

it is to split into factions. • Inappropriate board composition • Unclear accountabilities Many arts boards are reliant on ‘volunteers’ to fill As a result of structural complexity it may be available board positions and, as a consequence, difficult in some cases to identify that part which are grateful for anyone willing to join the board is ultimately responsible for the actual irrespective of their ability to contribute to effective performance of the organisation. governance. There is a related temptation to appoint Many arts organisations recruit and rely on people who are well known to the chief executive, the efforts of unpaid board members who are chairperson or other directors. In this latter case, expected, because of their particular expertise conflicts of interest can easily arise when the or contacts, to fulfil what are really operational, primary qualification is loyalty towards, for instance, not governance, roles. As a consequence, the chief executive. Both situations are likely to accountabilities can easily become confused arise when boards pay insufficient attention to and the application of operational or professional the challenges they need to deal with and the expertise (e.g. finance, marketing and fund-raising) undertaking of effective succession planning. can exacerbate a tendency for major policy and directional issues to go unresolved or even un-debated. Instead, boards conscientiously grapple with small (usually operational) details which, more often than not, are (or should be) the responsibility of chief executives, artistic directors and their staff.

0142 typical governance 2.0 challenges

Sometimes inappropriate board appointments • A reactive orientation are made because there is not a good understanding In the absence of a clear sense of where their efforts of the role and responsibilities that any governing should best be directed many arts boards allow board must accept if it is to add real value to themselves to be distracted by external ‘noise’ or by organisational performance. A common problem, staff initiatives which do not have a clear governance as noted previously, is that some boards attempt to dimension. This may be compounded when the use the appointment of particular individuals to board does not design and determine its their boards to secure free professional advice and own agenda. services, or to access potential sources of funds. • Reviewing, re-hashing and While this recognises the reality that smaller re-doing staff work organisations cannot afford to purchase such Being unclear about their own unique ‘value-added’ assistance, it can have a variety of negative effects. role, many boards spend a significant proportion of Unless the role of board members as ‘unpaid staff’ their time going over the work that their staff is clearly distinguished from their role as ‘directors’, (both paid and volunteer) have already done doing the work of the organisation will crowd out (or should have done). the time and effort needed for real governance direction and leadership. In larger organisations it • Confusion between ends can also lead to the board unwittingly cutting across and means responsibilities it has, or should have, delegated to Many boards fail to define clearly the results which the chief executive and artistic director. they expect their organisation to achieve (ends) while allowing themselves to be drawn extensively • A short-term bias into operational matters (means). It is the ends or There is nowhere else in the organisational structure outcomes that give meaning to an arts organisation’s which should be more focused on the longer term work and without them any operational activity than the body responsible for governance. For many (including artistic delivery) is lacking in purpose arts boards, however, the greater part of their time and direction. This is invariably accompanied by and effort is focused on matters that are of relatively a failure to set and monitor meaningful performance historic operational significance. As a consequence, measures for the organisation. The board’s focus the key part of governing the organisation – tends to be diverted to measures of activity at the designing the future – is often neglected. expense of a search for evidence of appropriate • Excessive time on matters which results and outcomes. are relatively unimportant or are • Low standards of governance not part of the governance job performance A similar problem stems from a lack of clarity about The boards of cultural organisations expect the the board’s job description and also from the highest possible standards of performance and absence of a governance-focused work programme achievement from their artistic and management that ensures the board concentrates its efforts on staff. Rare, however, is the board in the sector that those matters to which it can add greatest value. can explicitly demonstrate that it has set, and is Too few boards take the time to actively distinguish holding itself accountable for, an equivalent standard between matters which are important and those of performance. that are merely urgent. If a board does not have a clear sense of what its own job is and how it would be most effectively implemented, it is not surprising that it does not recruit members who can contribute effectively to the governance (as opposed to the work) of the organisation. As a consequence, many cultural organisations suffer because their boards achieve less than they should on behalf of the organisation. Potentially significant contributors to the board’s work can be difficult to attract and retain if the board has a poor reputation.

15 typical governance 2.0 challenges

• Chief executive/board strength • A passive or ineffective approach imbalance to succession In some situations boards, or individual members, Many arts organisations are built around the vision intrude in such a way as to prevent their chief and commitment of a founding board member, executive from doing his or her job. In some other or the creative talents and leadership of an organisations, despite their ultimate legal and moral inspirational artistic director. There is danger when accountability for organisational performance, the organisation becomes overly dependent on that boards appear comfortable being little more than person and his or her energy, commitment or ability cheerleaders for the chief executive and/or the to inspire begins to wane. If the organisation is artistic director. This means that the board is not bigger than any one individual and continuity is only failing to add the value it should, but may be important a board must face up to the need to plan setting the chief executive up for a fall. It is not for others to take the individual’s place and even unusual for a passive, subservient board to come instigate such a change. Many fail to do so until it eventually to express concern that their chief is too late. executive (or artistic director) is too dominant • Lack of a systematic and coherent and that the organisation is too dependent on approach to the board’s job just one person. Taken together many of the matters referred to Without an explicit definition of the board- above are a reflection of the common lack of a chief executive partnership, in which the authority consistent and systematic approach to the board’s and contribution of each have been clearly defined, work. Many boards understand that their role is the safe management response is to delegate primarily to provide direction to, and to exercise upwards to the board, further distracting it from control over, their organisation. They also know its most important work. that they should do this through the articulation • Board expectation/management of an explicit policy framework. Some boards never resource imbalance quite get around to it. Others, particularly in Most arts organisations are very lean on smaller arts organisations, deliberately eschew management and administrative structures. what they consider an unjustified formality. Not surprisingly, the resource allocation is geared towards the creation and production of artistic Discussion Topics product. This is self-fulfilling in that the emphasis 1. From your and your fellow board members’ on arts funding (and measurement of performance) experience, are there other challenges that should is on creation. Few arts organisations have the be added to this list? luxury of a large management resource and often 2. What are the challenges that are most pertinent the same people are performing multiple roles in to your board, and that its governance development both the artistic and management aspects of the initiatives should be directed towards? business. The lack of an adequate management resource often creates tension between a board’s expectations and the staff’s ability to deliver them. Board and arts executives need to be aware of the impact both have on each other. Boards need to be able to prioritise what is most important. Chief executives must be able to negotiate what is realistically achievable with their boards.

16 the need for leadership 1.2theand role effective of governan thece governing board section3

According to one U.S. authority,1 the non-profit arts board was invented in the nineteenth century to govern and finance the symphony and museum. A few wealthy men would underwrite the budget and call the shots. Now arts boards not only govern and raise money, they also represent the diverse constituents of a community, provide volunteer services and share complementary responsibilities with professional staff.

03 17 the role of the 3.0 governing board

A governing board’s primary responsibility, on behalf 7. Appointing and supporting the chief executive, of its stakeholders, is to ensure that the organisation evaluating his or her performance and rewarding that it is responsible for remains viable and thrives. it appropriately; replacing the chief executive, This is a stewardship or trusteeship role. It is particularly if necessary. important to establish a clear distinction between the 8. Monitoring organisational and chief executive job of the board to govern – provide direction and performance to ensure this is consistent with control – and the job of the chief executive to manage expectations. the operations of the organisation. 9. Ensuring the organisation complies with statutory The key functions carried out by a and contractual requirements and with the board’s governing board should include: own policies.

1. Defining, within the organisation’s legal and 10. Setting standards for, and evaluating, the board’s constitutional framework, the organisation’s own governance performance. purpose, direction and priorities ensuring that these are valued and worthwhile. 11. Ensuring there is appropriate succession planning to ensure a balance between replenishment and 2. Specifying key outcomes or results, approving the continuity on the board and revitalisation of the resourcing to be available for the achievement of artistic direction. those results and monitoring and evaluating the In the US not-for-profit sector, particularly, it is board’s achievement. argued that another key board role is for members 3. Regularly scanning the environment beyond the to ensure the organisation has adequate resources organisation to ensure that what it is attempting by bringing in funds by solicitation of personal to achieve remains both relevant and achievable. connections and by personal monetary donations. This expectation is exemplified in the oft-used 4. Communicating with the organisation’s ‘owners’ phrase ‘… give, get, or get off’.2 Fund-raising is, and other stakeholders to ensure that they have strictly speaking, not a function of governing and input into the determination of direction and goals, while there are exceptions, tends not to be an that they are kept informed about organisational explicit expectation of arts boards service in performance, and that the board is able to fulfil its New Zealand.3 However, in addition to their accountability for ensuring that the performance governing role, board members may choose to of the organisation is consistent with ‘owners’ make other contributions. Any search of the web expectations. will point to the extensive literature on board-level 5. Developing a governance policy ‘umbrella’ which participation in fund-raising. That literature is guides (or, as appropriate, constrains) all overwhelmingly US in origin. Useful local guidance operational activities. may be sought from the Fund-raising Institute of New Zealand (www.finz.org.nz). 6. Establishing a framework for balancing risks and rewards and the management (control and Discussion Topics mitigation) of risk. 1. Is your board performing the key functions of a governing board? 2. Does it have a clear understanding of the distinctions between governance and management?

University of Amherst, Massachusetts. (5th Ed. 2007). 2007). (5th Ed. Massachusetts. Amherst, University of Arts Management. Fundamentals of (eds.) with Craig Dreszen Brown and Maren Korza Pam 1999. Second Edition. Boards. Center for Nonprofit National DC. Washington Basic Responsibilities of Nonprofit Boards. Ten T Ingram. See for example Richard 1997. Jossey-Bass. San Francisco. and Lobbyists. Advisers, Board Members as Fund-raisers, Carver. See John 1 2 3

0182 the legal and accountability framework section4

The structures and processes of governance flow, from the organisation’s constitutional framework. Most arts organisations are separate legal entities. As such, they have an existence independent of their ‘owners’ and those they employ.

19 the legal and accountability 4.0 framework

In terms of their legal status most New Zealand arts Such questions are of particular interest at the stage organisations have been established as incorporated when the organisation seeks to evolve from management societies or charitable trusts. Other forms are also by its founders to, for example, a trust or incorporated available, for example, limited liability companies with society with a board of governors distinct from artistic charitable objects. Specialist advice should be taken and managerial personnel. The fear founders have of on the most appropriate structure if change is losing control and artistic integrity is understandable. contemplated. When doing so, arts organisations It may also, however, hinder the further evolution of should be conscious that different legal frameworks the organisation. may have an impact on: Most arts organisations are not-for-profit rather than strict commercial ventures, but they must exercise • artistic integrity (the process of, and influence on, all the normal accountability and performance artistic decision-making, acceptable levels of disciplines expected of any business if they are to survive influence and potential loss of control) and thrive. While a key requirement is often to create • artistic ownership and preserve tax-exempt status, vital prior questions (protection of intellectual property). should concern the nature of the proposed organisation and its operations, the essence of the risks to be managed and the type of relationships needed between the organisation and key stakeholders. It is also, fundamentally, about the assignment of decision-making rights. Who will be authorised to make which decisions and where will the buck stop for the organisation’s performance? Not surprisingly, a wide variety of different governance structures have evolved among arts organisations in New Zealand to meet their different needs and to reflect their different operating styles. Some appear to work better than others. There is no single right way to structure an organisation from a governance perspective, but there are some important principles that should be kept in mind. • The governance structure should distinguish the responsibilities of different roles in the organisation with clear lines of accountability between each role. This is particularly important in organisations where board members simultaneously wear different hats, reflecting their different roles in the organisation (e.g. member/shareholder, board member, voluntary staff member, performer, consumer or audience member). It is vitally important that everyone is clear when these different roles are being played because the relationships to other roles and the accountabilities between them are fundamentally different. For example, as a board member in an incorporated society your accountability is to the membership as a whole. If, at the same time, you are also a volunteer working in the organisation you are, in effect, an unpaid staff member accountable to the chief executive (or other appropriate staff member).

0202 the legal and accountability 4.0 framework

• There should be only one staff member directly This model implies a pronounced degree of appointed by and accountable to the board. hierarchy that may be alien to the way many arts It is not uncommon in arts organisations around organisations prefer to operate. However, strict the world for there to be more than one person observance of the appropriate relationships between (e.g. the chief executive and the artistic director) each of these roles should not be interpreted as appointed by and reporting directly to the board. impeding a high level of collegiality. Indeed, Experience of these dual control arrangements is effective communication (up and down the that there is considerable potential for conflict hierarchy) and team work is essential because each between these two roles. The board is often forced of these roles is interdependent. The board cannot to become referee between the two individuals do everything by itself. It needs good staff, and staff who may represent the twin tensions in an arts definitely need a good board. The important thing is organisation – the expression of artistic judgement that the different roles are well defined (particularly versus responsibility for financial viability. when individuals are members of more than one Wherever possible it is preferable for there category at the same time), individuals are conscious to be a single person accountable to the board for when they ‘switch hats’ and that the responsibilities the organisation’s performance. There are many of each role is respected and discharged to the successful examples in New Zealand of single highest standard of performance each can muster. chief executive models. It appears not to matter Any hint of ‘us and them’ thinking is a sign that whether this person is, in effect, the artistic director attention needs to be paid to reviewing and aligning (e.g. Taki Rua Productions), or the chief executive mutual expectations. (e.g. Chamber Music New Zealand). The important An organisation that can keep closely to this thing is that everyone knows who is in charge and basic architecture can readily add other specialist accountable to the board. elements without confusing accountabilities. For example, it may wish to have a variety of • The structure should be kept as simple as possible. advisory or special purpose groups to provide some The following diagram depicts the classical ‘unitary’ form of specialist advice or assistance. In some cases governance structure. In terms of the strict lines separate groups might be tasked to assist with an of accountability inherent in this model the board aspect of the board’s governance responsibilities is appointed or elected, and acts on behalf of, (e.g. one regional orchestra has made use of an the members or owners in a stewardship or advisory panel to assist with the chief executive’s trusteeship role. It appoints the chief executive, performance appraisal). Board committees who in turn is the employer of staff, contractors containing specialist members who are not also and volunteer (i.e. unpaid) staff. board members may also be delegated to perform

aspects of the board’s responsibilities. In other cases, such groups may exist to provide operational Authority Communication assistance (they deal with ‘means’ rather than ‘ends’) in which case they should be accountable to, Members / Owners / Board and under the control of, the chief executive. By keeping this role clarity to the fore and helping to remind people when they ‘change hats’, CEO this model can also cope with the complexities that commonly exist in arts organisations. For example: Staff • where the staff are the beneficial owners, as well as employees, of the organisation Customers • where board members may be needed to work in the organisation as volunteers

Accountability (unpaid staff members).

21 the legal and accountability 4.0 framework

So long as it has a mandate from the owners/ As the governing body of the organisation the board members, the board is ultimately accountable for must see to it that the organisation complies with a wide all organisational matters within its ambit. range of legislation covering such areas as employment, In this sense, the ‘buck’ stops with the board. trading, occupational health and safety, etc. The board Board members are jointly and severally responsible should be aware of the scope and general content of for all decisions taken by the board. Board members such legislation and its relevance to the organisation. are required to act in the best interests of the Each board should seek direct legal advice to ensure that organisation as a whole, notwithstanding any it has a clear understanding of its legal and constitutional obligation they may feel to ‘represent’ particular responsibilities. interest groups. Board members are fiduciaries who share common Discussion Topics legal and moral responsibilities. These include to: 1. Is your present legal framework consistent with the purpose of the organisation? • exercise a duty of care 2. Does that framework support the fulfillment of • act honestly the organisation’s current and future aspirations? • exercise a reasonable level of care and diligence 3. Does your governance structure ensure there is • avoid using their positions for personal advantage clarity of accountability? • comply with all relevant legislation and organisation 4. Do board members understand and accept their constitutional requirements fiduciary duties? • act in the best interests of the organisation as a whole. In exercising a stewardship responsibility on behalf of others (usually members of an incorporated society or beneficiaries of a charitable trust) the board is responsible for: • the achievement of appropriate outcomes • the financial security of the organisation • the expression of a moral and social responsibility.

22 the need for leadership 1.2stakeholderand effective governance relationships section5

Stakeholders are those groups and individuals who benefit in some way from the existence of the organisation. Good governance demands that key stakeholder interests are clearly identified and positive relationships established.

03 23 stakeholder 5.0 relationships

It is important that the board take these relationships • those with whom there is a into account in determining organisational direction and business relationship – including all those priority. Boards should consider how to actively involve individuals, companies or organisations with which key stakeholder interests in the process of thinking the organisation establishes a contractual about, and setting, direction and priorities. relationship for the receipt or supply of services or Categories of stakeholder interests include: funding. Included in this group are organisation staff, funding bodies, sponsors and suppliers of goods • owners – few arts organisations are constituted and services. as companies with shareholders. More usually they are incorporated societies or charitable trusts in Note – In those cases where the governance one form or another. For many arts organisations, arrangements have evolved around a core of therefore, the concept of ‘moral owners’ is a artistic staff or even one person who is central useful substitute to assist in thinking about those to the organisation’s very existence (the founding people for whom the organisation (and its choreographer or dancer in a ballet company, component parts) exists, but who cannot exercise or the players in an orchestra), ‘staff’ may also the same rights as legal owners. be synonymous with the ‘owners’. • others – there may be other important stakeholder relationships: other, even competing, arts organisations, Creative New Zealand, the Ministry for Culture and Heritage and other central government agencies, local government, special interest groups, international bodies, etc. It is common that arts organisations overseas enlarge their boards to enable a diverse range of stakeholders to participate as board members, particularly important donors, sponsors and procurers of funding. This can mean boards of 30 or more members that have a confused role and are far too large to provide effective governance. In New Zealand there are examples of arts organisations that have resisted the temptation to put representatives of stakeholder groups on their board. Instead they have created separate organisational components to fulfil important functions. The core of the Auckland Philharmonia’s governance structure, for example, clearly represents ‘owner’ interests. In addition, however, it has established ‘satellite’ entities like the Foundation and the Society, which have important roles, for example, in the protection of assets and fund-raising. The Auckland Philharmonia is also an example of an organisation that has deliberately designed its governance structures to put artistic interests at the centre.

24 stakeholder 5.0 relationships

Stakeholder analysis Discussion Topics Boards frequently have to give a lead on sorting out 1. Who are your ‘owners’ and how does the board stakeholder relationships that are vital to the success express its accountability to them? of the organisation. They should ensure that those 2. Have you defined other categories of important relationships are conducted appropriately and effectively. stakeholders and how the board expects the It is worthwhile, from time to time, for a board to organisation to relate to them? conduct its own stakeholder analysis to allow it to pay attention to the organisation’s most important stakeholders and to ensure that the relationships it wishes to have with those are on track. The table below offers a simple but systematic structure for that discussion. The point of the process is to identify the most important relationships (positive or negative) from those that are of lesser importance. Because these relationships are dynamic this is an analysis that should be undertaken regularly (at least annually).

Step One Step Two Step Three

List of stakeholders Assess degree of Assess nature of each (compile by influence each stakeholder’s influence ‘brainstorming’ with stakeholder has (from very positive to meeting participants) (high, medium, or low) very negative)

Stakeholder 1 High Positive

Stakeholder 2 Medium Very positive

Stakeholder 3 High Very negative

Stakeholder 4 Low Negative

Etc.

St e p Fo u r – Plot each stakeholder on a grid to get a visual picture. In this example the board’s attention should be focused on Stakeholders 1 and 3.

High influence

Stakeholder 3 Stakeholder 1

Stakeholder 2 Very positive Very negative Very

Stakeholder 4

Low influence

St e p Fi v e – develop appropriate strategies to address relationships that are not consistent with the board’s expectations and to maintain those that are.

25 [ credit Evotia / www.evotia.co.nz

26 Enuamanu Atiu Nui Maruarua Society perform at the 2008 Arts

] Pasifika Awards. policy leadership section6

It is generally accepted that the role of any governing board is to determine and monitor policy, while it is management’s job to implement that policy. However, this convention appears to be neither well understood, nor effectively applied in many arts organisations. Indeed, what even is policy? It is important to get this right because it is through the board’s policy-making role that it is able to exercise leverage over organisational performance. Its policy framework provides the form of remote control that it needs over the organisation.

27 What are policies and how 6.1 are they made?

It is useful to think of policies as those formal When developing governance-level policy a board statements, reflecting the board’s aggregate values and should always start by identifying and defining the perspectives that underpin and provide an agreed basis highest, broadest or most abstract level of an issue for organisational action. requiring policy direction. Ideally policy-making should The policy-making process should be proactive. start with an overarching policy statement to form an Policy development should be conducted in a coherent umbrella policy under which its expectations can then way, ahead of need. Unfortunately, in many organisations, be spelled out in progressively greater detail. policy-making is reactive. Policies are developed in an The draft policies that follow later in this guide ad hoc fashion to solve a particular problem after it has display this sequence from high-level (broad, general) occurred. Such policy-making is seldom as effective as policy statements to lower level (narrow, more specific). policy made in advance. For example, it is too late to While a key requirement is often to create and preserve adopt a conflict of interest policy once a conflict of tax-exempt status, vital prior questions should interest has become apparent around the board table. concern the nature of the proposed organisation and That almost always means that the policy is tailored its operations, the essence of the risks to be managed to the specific instance and the discussion of it and the type of relationships needed between the becomes personal. organisation and key stakeholders. The board’s objective must be to see to it that the desired outcome is achieved. This does not mean that decisions or interpretations would be necessarily exactly the same as those made by individual board members if the delegation were theirs, but it must be a reasonable interpretation of the board’s words.

0282 governance 6.2 policies

The concept of ‘policy’ is used loosely in many arts 2. Board-Chief Executive Linkage policies organisations in New Zealand with the consequence that These define the nature of the board-chief executive governance policies relating to the purpose, direction interrelationship, specifying the details and extent and performance of the organisation (the ‘what’ and of the board’s delegation to the chief executive ‘who for’ issues) are frequently mixed up with policy and the methods to be applied in determining relating to operational details (the ‘how’ issues). An chief executive effectiveness. effective board carries out its leadership role via the 3. Executive Limitation policies development, adoption and review of governance policies. These define the constraints or limits the board One policy framework, which has been widely wishes to place on the freedom the chief executive adopted among not-for-profit organisations around the (and by implication other staff and volunteers) has world, is based on the concept of ‘policy governance’ to select the means to achieve the outcomes the developed by John Carver.4 More than most other board has selected. While it is common practice ‘how to’ books on not-for-profit governance, Carver’s to write policies prescriptively (e.g. telling the formulation provides a sound conceptual starting point chief executive what they can or should do), the for any arts board wanting to think about its primary proscriptive, or limitations approach, paradoxically, responsibilities and how these might be put into effect. gives the board greater control while at the same Carver’s framework has four policy categories that time offering far more empowerment for the together embrace the core elements of the board’s job. chief executive. 1. Ends policies 4. Governance Process policies These policies address the organisation’s These define the scope of the board’s own job fundamental reason for being – its purpose – and design its operating processes and practices. and set the outcomes or strategic results to be achieved by the organisation. These policies also Ends policies primarily address the external world in identify the beneficiaries of the outcomes and which the organisation exists and the impact the address the cost, value, or relative worth of organisation wishes to make on that world. The other the outcomes. three policy categories deal, in a sense, with matters of good housekeeping relating to, for example, the internal environment of the organisation. San Francisco. Jossey-Bass Publishers. Third Edition. 2006. Third Edition. Publishers. Jossey-Bass San Francisco. Make a Difference. Boards that Carver. John 4

Developing, adopting and 6.3 reviewing governance policies

A board’s own governance policies can be initiated, While board committees or working parties may altered or deleted as required. The task of developing also be used, for example, to carry out consultation or governance policies should be carried out with the research leading to the development of a governance active involvement of all board members. The process policy (or to a subsequent change), only the board should never be delegated solely to the chief executive as a whole should be empowered to approve or adopt or to an outside consultant although it is important that a governance policy. the chief executive and other key staff participate in the Once governance policies are adopted, all board process. Policies that define what is expected of the chief members are bound by them. Policies enable the board executive and thereby other staff (Ends and Executive to speak with ‘one voice’ even though the policy may Limitations policies) must be realistic and achievable only have been agreed on the basis of a majority vote. and, therefore, informed by chief executive and staff This is an important concept because within each board advice. Chief executive/staff understanding of the quite different interests and constituencies might be board’s intentions is important if policy implementation represented. There needs to be a process whereby the is to be effective. Use of an appropriately experienced board as a whole can make a decision which can be governance consultant can also be valuable in, for implemented, even when board members are not example, speeding up the policy development process unanimous. Once a policy is made it is the board’s policy and by bringing the experience of comparable and carries the board’s full weight, regardless of the organisations to bear on the process. views of any individual member of the board.

29 Developing, adopting and 6.3 reviewing governance policies

The board should review its governance policies on a One last point. Many boards have made governance regular basis. Ideally, the board should have a schedule policies over the years but these remain buried in the of all its policies which indicate when (and by what minutes of past meetings. Governance policies should method) these should be reviewed. This topic is always be consolidated into a single document for easy addressed further in Section 9. reference and application by board members and staff This resource guide and the draft policies used as alike, and to facilitate their revision. A board’s policies illustrations are intended to make this task as easy as should always be at the forefront of its work. Ensuring possible, although the debates about policy issues and that every meeting agenda item has an applicable policy what policy should be may, at times, be quite difficult reference to set the scene for the board’s consideration given the complexity and challenges of a board’s work. of that item is a pragmatic and powerful technique for achieving policy implementation.

the chief executive’s own 6.4 operational policies

Once the board has established its governance policies Discussion Topics the chief executive should be expected to develop all 1. Has your board developed its own governance further operational policies and protocols necessary to policies and are these up-to-date? achieve the results and manage the risks addressed in 2. Is there a clear distinction between governance the governance policies. and operational policy?

The board should not adopt or approve 3. Is there life in your governance policies operational policies (e.g. are they understood by all board members Doing so removes the chief executive’s ability to make and used actively by the board to frame the necessary operational policy changes when needed resolution of important questions and provide without reference back to the board. The chief executive leverage, generally, over organisational should not be constrained by having to continually seek performance)? board approval for matters that the board should properly delegate, and the board should not have to do the chief executive’s job as well as its own. This does not mean that, from time to time, the chief executive may not seek advice or assistance from individual board members about operational matters. When, however, that advice or assistance is provided, board members put aside their governance responsibilities and the chief executive, when weighing up their advice, has the discretion to choose whether or not to act on the advice.

30 determining the organisation’s strategic direction section7

While different terms are used interchangeably in different organisations and mean different things, this task begins with ensuring there is a clearly stated purpose for the organisation’s very existence.

31 the need for boards 7.1 to give direction

Before the board can hold the chief executive (and the • What is important to us? chief executive can, in turn, hold staff or volunteer • Where do we want to get to? workers, contractors, etc.) accountable for organisational performance, the board must have done its own job. • What do we want to become? While different terms are used interchangeably in • What is our ‘mission’, our vision? different organisations and mean different things, this • Is it still relevant? task begins with ensuring there is a clearly stated purpose for the organisation’s very existence. This • Who are we doing this for? Who should benefit? should give real meaning to the work of the organisation • How do we want to interact with each other and, by making choices clearer, assist with day-to-day and the outside world? decision-making. The board, in conjunction with the • Have we fulfilled our purpose – is it time for us to chief executive and leading artistic and administrative close the doors and move on? staff, should regularly address such questions as: • What is our purpose, our reason for being? The answers to these questions may at first glance (What is our ‘Big Idea’?) be relatively abstract. It is important, as a next step, to convert or translate these into more specific • What is the ‘essence’, ethos or spirit of this outcomes or key results to be achieved. For example, organisation? is the purpose of the Big Town Theatre Company to • If this organisation did not already exist why produce timeless and popular theatre like Oscar Wilde’s would we create it? The Importance of Being Earnest, or more cutting-edge contemporary works? These are not academic questions and are essential to assist in the development of the type of Ends policies referred to earlier. The absence of clear answers to such questions also prevents the effective monitoring and evaluation of organisational performance. Traditional strategic plans are often replete with high-sounding vision or mission statements, but these are often little more than statements of good intention and reflect a great deal of wishful thinking. As Scott Adams, the creator of the Dilbert cartoons once said, the average organisational ‘mission statement’ is little more than a long, awkward sentence that demonstrates the leadership’s inability to think clearly. Many organisations’ strategic intentions also tend to be cast in a way that puts the primary focus on activities (what we will do) rather than outcomes (what we will achieve). Falling into this activity trap is a distraction to the board from its primary responsibility – to see that the organisation achieves something worthwhile. It inevitably means that the board’s attention will be drawn to measures of how busy the organisation is (how much activity is occurring – e.g. how many shows have been put on); rather than how effective it is (is it achieving the desired results – e.g. how favourable is the audience response?). This makes understanding of organisational performance and measurement of progress toward important goals difficult.

0322 the need for boards 7.1 to give direction

As in many other sectors, there have been examples The board’s high-level purpose and strategic of organisational failure in the arts sector which can be outcome statements should generally have a longer-term directly attributed to a lack of board strategic focus and focus and create a framework within which the chief understanding. In one case a theatre company diversified executive and other staff can prepare shorter-term from its traditional offerings into an area that was (e.g. one to three year) business plans that detail the superficially attractive but where the production cost actions required to achieve the longer-term outcomes structure and audience profiles (and expectations) were prioritised by the board. quite different. The lack of a clear, strategic decision- Who should be involved? A board’s leadership role making framework and the analysis to support the new and its ultimate accountability demand that it take full direction meant that the risk profile of the company responsibility for determining organisational direction, completely changed without the board being aware of it. but it should not do so in a vacuum. The board should That company failed. involve not only its chief executive and senior artistic A board should, therefore, ensure that its strategic and administrative staff, but key external stakeholders intentions are expressed in the form of outcome should also be engaged in the discussion as appropriate. statements specifying the results to be achieved (for The expected results have to be achievable and also example: “that members/audiences experience regular acceptable to a wide range of interests. Given the live performance by internationally acclaimed relatively small size of most arts organisations it is ensembles”). It is particularly important that the process desirable that all staff are engaged in the strategic focuses on producing statements of ends not means. thinking process at some point. If these discussions For that reason, boards should be very wary of are effective and real, they build commitment and producing statements of strategic intent that, in practical ownership throughout the organisation and lead to terms, are simply statements of ways of doing things better decision-making and more effective (producing, enhancing, facilitating, coordinating, etc.). implementation. A related risk is of being locked into a particular, The idea that strategic direction must ultimately be perhaps traditional, way of doing things that inhibits determined and owned by the board may seem to run smart thinking about better ways of achieving desired counter to the reality that some arts organisations are results. driven by the vision and energy of just one person. A failure to do this can easily constrain the That might, perhaps, be a founding board member or organisation’s ability to achieve its main purpose. An another person such as a creative director who has organisation that is ‘means’ focused can easily become exercised particular influence over the organisation trapped by its thinking about the way it delivers rather for an extended period. However, it is possible for the than what is deliverable. A theatre company, for example, influence of that person(s) to change gradually from a that has its own theatre may be easily persuaded that its positive to a negative one. Arts organisations around the main purpose is ‘running a theatre’ and that its primary world are prone to the phenomenon called ‘founder’s focus should be ensuring that the theatre is as full as disease’ whereby the founder’s energy, ability and possible. A few years back, Taki Rua, in Wellington, relevance wane over time but they tenaciously keep found itself in this position. The board’s early control of important decisions. Even if they do not preoccupations reflected a group of people struggling to noticeably drag the organisation’s performance down, keep a physical theatre facility open. There was a lot of they progressively alienate others who might be willing fire-fighting. Being in survival mode absorbed energy and able to take the organisation to a new level. and focus at the expense of artistic direction. Having It is a very human trait that the individuals concerned, given up its theatre premises, the board could make wrapped up as they are in their undoubted commitment positive decisions about the future and the achievement to the organisation, may not realise when it is time to of a vision that related to supporting the development of stand aside. The possible need to make changes to key new, indigenous works. It was freed up to approach the personnel so as to revitalise the organisation and to achievement of this vision in a vastly different manner. avoid the inevitable threat to its reputation and viability The change in approach also meant a shift in stakeholder underlines the importance of the board in providing focus – more towards actors, writers, etc. It now has effective long-term stewardship and continuity. a higher expectation of quality and has developed a The board cannot avoid its responsibility for the overall national focus. well-being of the organisation and for acting in the interests of all the people who depend on it in some way.

33 the need for boards 7.1 to give direction

This problem of replenishment and revitalisation is Important strategic issues should never be far from best addressed by combining board level discussions of the board’s sights. For example, while to some it may be future direction with an explicit and regular discussion considered an operational issue, it is important to find of succession planning issues. For example, the board a way for the board, senior staff and those involved in should be concerned for both emergency (sudden programme delivery to engage in an effective dialogue incapacity) and planned chief executive succession about artistic programming. For a cultural organisation, , July 5, 2008 5, July , Dominion Post (e.g. retirement, contract completion). It must also programming goes to the heart of organisational 5 ensure that the board itself has regular infusions of new purpose, strategic direction, risk and, not least, financial blood. For that reason, board members should be viability. These are surely matters of pre-eminent elected or appointed for limited terms (e.g. two to three governance concern even though board members, years) with the possibility of extension (conditional on compared to staff, may have no particular experience having added value to the board) but no expectation of or expertise. This highlights one of the basic governance reappointment. paradoxes. A board that does not contain particularly Not only does the need to tackle the revitalisation relevant expertise or professional capability is or renewal of the leadership present one of its most nevertheless still responsible for organisational difficult strategic decisions but the board of an arts performance (and indirectly, the careers of those in the organisation also has the job, legally, of winding up an organisation that do have the expertise and capability). organisation that can no longer fulfil its core purpose and whose time has passed. Strategic thinking about these types of issues is not a one-off, or even once-per-year (or even less frequent), activity. It should always be kept in mind that the board can only influence the future, and therefore its time and attention should always be focused on ‘designing the future’. Cultural organisations in New Zealand operate today in a rapidly changing environment. A board has to ensure that the strategic direction, priorities, etc remain up to date and relevant. Therefore, time should be provided at every board meeting to allow the board and key staff to undertake a continuous analysis and assessment of external and internal factors that might assist or inhibit the organisation in the achievement of critical results. Environmental scanning of this type should be done systematically but need not become a major exercise. One way to approach this is by conducting a brief ‘radar screen’ discussion at every board meeting. It is simply a question of inviting all board members to identify what is happening in the organisation’s operating environment that might represent new ‘blips’ on the organisational radar screen. A brief initial discussion should determine which of these should be subject to monitoring and perhaps a more thorough evaluation in due course. An interesting observation, by the newly appointed director of an arts organisation, referring to the decision to make a major change in the way the theatre operates, was that: “… nothing went wrong, except perhaps the antennae got a bit corroded” 5. A board should make sure that its ‘antennae’ are in good working condition at all times and well tuned in to the operating environment.

34 tools for 7.2 strategic thinking

The following tools are offered to assist boards in the Point A is where Handy advocates that an organisation process of environmental scanning and strategic should be looking to launch a new curve. At Point A, thinking. While in this resource manual these tools are while it is doing well, it has the resources and the energy directed at board members, most are also essential tools to get the new curve through its initial floundering and for effective strategic management, the task of the chief explorations, before the first curve starts to dip down. executive and staff. Unfortunately, all the signals coming into the organisation at that point are that everything is going SWOT analysis fine, that it would be folly to change a proven formula. The systematic review of Strengths Weaknesses It is only at Point B on the first curve, when disaster is Opportunities and Threats is one of the most basic and looming, that there is real energy for change. At Point B powerful strategic thinking tools and should be regularly it may be too late – resources are depleted, energy is used by the board when analysing the continuing low, existing leaders are discredited. relevance of its strategic ends. Having identified the Handy comments that “… wise are they who start the strengths, weaknesses, opportunities and threats, the second curve at Point A because that is the Pathway through board and management should work together to build Paradox, the way to build a new future while maintaining the on the strengths and opportunities and either eliminate present”.7 The best organisations recognise the inherent the weaknesses or turn them into strengths, and devise logic of the Sigmoid Curve and are continually self- strategies to address the threats. critical and oriented to actively seeking out self- SWOT

A less formal and structured alternative to a Chapter 3. 1994. Books Ltd. Arrow Hutchison London: The Empty Raincoat. Charles Handy. p 52. 1994. Books Ltd. Arrow Hutchison London: The Empty Raincoat. Charles Handy. improvement opportunities in the manner that has been 6 7 analysis which can be used at every board meeting is documented in this report. Organisational cultures are, the ‘radar screen discussion’ referred to earlier. however, very persistent in the short and even medium The PPESTI analysis term. While some of the recommendations will need The PPESTI analysis is an adjunct to the SWOT analysis, little effort to implement, others may require a focusing in detail on particular elements of the external substantial shift in thinking about how the organisation environment. PPESTI is an acronym for Political, is managed. Physical, Economic, Social, Technical and Industry. From time to time your board should be asking: These are the six main external environments within “Where are we on the curve?” It is a great way to get which most organisations must operate. Directors a strategic-thinking discussion started. explore each of these environments as they have an impact on the organisation’s future operations, helping to determine the future viability of the organisation and Where is your organisation today? its offerings. Remember that the board’s job is to secure a strong, viable future for the organisation on behalf of Success the various key stakeholders. To do this, it has to be constantly looking to the future and preparing for likely changes, whether these are known or simply anticipated. Point of Where are we today? greatest risk? A B Social philosopher and organisational behaviour expert Charles Handy has described how organisations have a natural ‘wax and wane’ cycle. Handy uses the ‘Sigmoid Curve’ (pictured to the right) to show how organisations Time develop and then decline if they do not, in effect, reinvent themselves. In his view organisations are probably never at greater risk than when they are performing reasonably well.6

35 tools for 7.2 strategic thinking

Demand-Capability matrix The Demand-Capability matrix is an adaptation of This tool is particularly useful in helping board members Michael Porter’s Market Share-Growth matrix. The to understand where its various programmes and vertical axis represents the demand for the organisation’s services fit in the overall mix. In the ‘most capable/high offerings. The horizontal axis represents its capability to demand’ quadrant are those things the organisation respond to the demand. Several criteria for capability does for which there is a high audience demand and the can be used, such as resource capability, alignment to organisation has real strengths in delivering. For mission and values, etc. Each programme or service is example, a music federation may be able to feature a first placed on the vertical axis, marking the point on pianist who is renowned for being able to attract an the axis where there is agreement about the ‘demand’. audience for the performance of a particular repertoire. The same process is then followed using the capability To use the same example in relation to the ‘most criteria for the horizontal axis. Where the two marks capable/low demand’ quadrant – the pianist’s expertise intersect is the point where the programme or service is renowned and he or she has a faithful following even is currently placed on the matrix. though the programme offering is relatively unattractive. An example of ‘least capable/high demand’ might be the choir that plans to perform a popular but vocally DEMAND-CAPABILITY MATRIX demanding series of works even though the works do the Developing The crisis in our boardrooms: The Fish Rots from the Head: Bob Garratt. London: Harper Collins Business. 1996. p94. 1996. Harper Collins Business. London: cruicial skills of the competant director. 8 not really suit the strengths of that choir. As far as the High Demand fourth quadrant is concerned – ‘least capable/low demand’ – don’t even think about it! Most Capable Least Capable The board must take care to ensure that the Good Fit Dilemma discussion that results from the use of this tool is not • Exploit these offerings • Gather data in support while the demand and the of further development used by the board to instruct the chief executive how suitability are aligned or initiation of these • Prepare to say ‘No’ to manage the various programmes and services. or to expand resource Day-to-day management decisions are the chief base in order to accommodate these executive’s prerogative to the extent defined in his or her delegation. However, the board may recommend Comfortable Fit Painful Fit that, as the consequence of the placement of a particular • Continue to provide these • Eliminate from your so long as they don’t organisation’s list programme in the grid, say, for example, in the bottom impinge on other more of priorities important works • Say ‘No’ to establishing right-hand quadrant, the chief executive should examine • Question priority status in one of these such a programme’s ongoing viability. terms of other demands • Exploit for public relations/ The use of this tool could lead to the board agreeing membership benefits to change its strategic priorities, with such agreement resulting in management making appropriate

Low demand consequential operational decisions.

Scenarios Ca p a b i l i t y = Ability to resource for effective outcomes De m a n d = Stakeholder demands Scenario thinking is perhaps the most advanced and most demanding of all the strategic thinking tools. In his book The Fish Rots from the Head, Bob Garratt summarises Chinese philosopher and strategist Sun Tzu’s thoughts on strategic thinking as an example of the logic that sits behind scenario analysis: The supreme act of warfare is to subdue the enemy without fighting … use strategy to bend others without coming into conflict. He who can look into the future and discern conditions that are not yet manifest will invariably win. He who sees the obvious wins battles with difficulty; he who looks below the surface of things wins with ease.8

36 tools for 7.2 strategic thinking

Through the development of a range of scenarios the Brainstorming board creates possible combinations of future events Brainstorming – to generate ideas about different issues against which to tests its thinking. While each scenario – is so widely used in organisational life that we assume should be markedly different, it should also be that everyone knows how to do it. However, there might considered feasible. The environmental factors in the be some value in briefly restating some of the key rules scenario should be both within and beyond the for the process. These rules are designed to ensure that organisation’s control. Although various board members the brainstorming process is effective and efficient and will argue about what is a reasonable likelihood, the to maximise the contributions of all participants. debate around this question is itself, an essential part of • Accept all ideas offered by participants; record the strategic thinking. Scenarios start with the question, these as proposed on a whiteboard or flipchart “What if …?” The whole board, an individual board member, or small group, with executive support, puts • Don’t analyse ideas as they arise together a description of possible external conditions • Stop the brainstorm when the ideas dry up and events that combine to form a picture of the future. A second scenario can be created that paints a very • Check that everyone understands what is different future. It is useful to describe a third scenario meant by the phrases recorded on the whiteboard which might, perhaps, represent a straight-line or flipchart projection of how things are now while bearing in mind • Arrange the ideas into logical groupings that assumptions about the status quo continuing into the future are seldom safe. • Debate their significance and relevance These scenarios should avoid taking a best case/ • Rank in order of preference worst case approach. This limits thinking. Rather they should be creative, but possible, scenarios based on the • Decide what action to take. way in which chains of events lead to other events. The There are many other strategic thinking tools and these board and chief executive then analyse each scenario to are documented widely in the host of strategic thinking test the organisation’s capability against each. Questions and strategic planning literature available. are asked such as, “How would we cope if this scenario came about?”, “How well placed would we be to face Fu r t h e r Re a d i n g : Graeme Nahkies and these events?” or “How could we best take advantage of Terry Kilmister. The Challenge of ‘Being Strategic’ this situation if it arose?” By analysing and discussing at the Board Level. Good Governance No. 53. these alternative futures and the external factors that September-October 2006. define them, the board tests its readiness for any number of environmental influences that at some time in the Discussion Topics future could have a major impact on the organisation. 1. Is your board effective in giving direction? An advantage resulting from board involvement 2. Has it clearly articulated its expectations about the in this activity is the use of their external perspective. outcomes or results the organisation should deliver? Management, tired from constantly fighting alligators, can lose sight of the length and breadth of the swamp 3. Is the vision a widely shared one that is likely to that they are supposed to be draining. Board members’ be sustainable into the future or is it dependent different views of issues can be refreshing and illuminating. largely on the current thinking and energy of one person (e.g. the founder)? 4. In what type of deliberations is your board primarily engaged – those that relate to ‘designing the future’ or those that relate to ‘minding the shop’? 5. Does your board actively use a range of strategic thinking tools to remain focused on the future?

37 e 2008 h ance for t D ootnote D ean Z illwood F F ootnote orte S eason of M T Y LAND , c h oreograp ed by C laire O ’ N eil.

[credit]

38 board- chief executive relationships section8

Some types of arts organisations unwittingly fragment the control of their organisations by the board having more than one staff member reporting to it (commonly an artistic director as well as the chief executive). A board should encourage unity of control and accountability by having only one direct employee – usually the chief executive.9 The chief executive, or whoever else acts as the head of the operational10 part of the organisation, should employ all other staff and should also be acknowledged as responsible for the work of volunteers. A board has all the same ‘good employer’ obligations to the chief executive as the chief executive has for other staff.

39 Appointing 8.1 the chief executive

A sound board-chief executive relationship is central Worldwide there has been a trend towards increased to a mutually satisfying working relationship and, chief executive turnover. This can be traced to a number ultimately, to organisational success. When appointing its of factors. In part it is because good chief executives are chief executive, the board should, therefore, take every in high demand and are susceptible to being attracted care to ensure that it has canvassed the field of available to new, more demanding and better-rewarded positions. candidates in order to attract the best person for the Just when things seem to be going well, therefore, position. All potential candidates should be thoroughly a board may well face the sudden, unplanned need to assessed for appropriate skills and experience, replace an effective chief executive. organisational cultural compatibility, and an It is also a reflection of the pressures on all understanding of, and empathy with, the organisation’s organisations today whether in the commercial, artistic vision, core purpose and general business. governmental or not-for-profit sectors. Just to survive, An ability to develop an effective partnership with let alone thrive, an organisation and its leadership need the board and whoever is the artistic leader is vital. to be very dynamic and adaptive. In this situation many boards have to face the harsh reality that even a chief executive who has served an organisation well in the past is not necessarily the person best suited to take the organisation through the next stage of its evolution. For these and other reasons boards have to face, more often, the challenge of appointing a new chief executive. The direct costs of replacing a chief executive can be very expensive; the cost of a poor decision is incalculable. “Boards have no one to blame but themselves if their CEOs disappoint them.” This is a quote from an article by academics Bennis and O’Toole11 who say that boards pick the wrong chief executives because they pay no heed to real leadership as the selection criterion. To them, leadership is a combination of personal behaviours that allow an individual to enlist dedicated followers and create other leaders in the process. Good leaders, they say, demonstrate integrity, provide meaning, generate trust and communicate values. In doing so, they energise their followers, humanely push people to meet challenging business goals and all the while develop leadership skills in others. Bennis and O’Toole say that real leaders move the human heart. Therein lays the board’s challenge – the ability to move the human heart is, as the authors say, “nebulous and squishy”, tough to quantify. Understandably, even boards that value such leadership abilities tend to shy away from an assessment of these ‘soft’ elements. Instead they go looking for hard facts (e.g. evidence of an ability to bring about a big decrease in operating costs or staffing levels) and proof of technical skills. Boards are much more likely to hire the right chief executive if they adopt the following guidelines suggested by Bennis and O’Toole.

0402 Appointing 8.1 the chief executive

1. Come to a shared definition of 4. Beware of candidates who act leadership – like chief executives – a board should generate a shared definition of many boards have been seduced by candidates who what leadership means in the context of current are little more than articulate, glamorous and organisational challenges before it goes out to charismatic dreamers. Appearances are often recruit a new chief executive. It must do this deceiving. You cannot tell a leader by what he or she before it engages the services of outside looks like, or by what they say, in staged encounters. executive recruiters. It has been said that the one sure way to spot a leader is by the presence of willing followers. 2. Resolve strategic and political One of the main things a board should do, conflicts – therefore, is to find out whether a candidate has board members often have hidden agendas, a track record of creating followers and differing world views and unspoken disagreements other leaders. about organisational purpose and strategy. It is important that a new chief executive does not 5. Recognise that real leaders are walk into a situation where he or she is expected threatening – to lead the organisation in a fresh direction, many boards seem to be averse to candidates who but is unlikely to obtain adequate support for threaten to shake things up. Real leaders are whatever direction they chart. Chief executives threatening to those intent on preserving the status deserve consistency and clarity of purpose from quo. A leader who can motivate people to make their boards. Boards can solve this problem by changes is, by definition, a destabilising force. engaging in the same kind of teambuilding they 6. Know that insider heirs usually often prescribe to top management. For example, aren’t apparent – boards should routinely meet offsite in order to ideally, no one should inherit a chief executive build informal relationships and nurture trust. position. Organisations should be meritocracies Even if honest differences remain, a board must not monarchies. Boards should, therefore, learn how to bring disagreements to the surface give ‘Crown Princes’ the same vetting treatment and deal with them in productive and non- as ‘commoners’. Particular scrutiny should be disruptive ways. Failing that, a way must be found given to internal candidates if they are to follow to replace board members whose personal agendas . Harvard Business Review pp. 171–176. May/June 2000. See Good Governance No.18 No.18 See Good Governance 2000. May/June 171–176. pp. Harvard Business Review . Wrong CEO’ the Hire ‘Don’t O’Toole. Bennis and James Warren highly successful predecessors. in this context embraces the artistic‘performance’ ‘Operational’ aspects. 2000. November/December ’. – Questioning the Candidates ‘Selecting the Right Chief Executive In some New Zealand arts organisations the board’s direct employee is, in effect, the Artistic Director, who employs the administrative support the administrative staff. who employs Artistic Director, the in effect, is, employee direct Zealand arts In some New the board’s organisations are at odds with the good of the organisation. 9 10 11 12 A board should not assume that a new chief 7. Don’t rush to judgement – executive can come in and put the board’s own along with picking too quickly, boards can house in order. sometimes mistakenly select a candidate who comes with a detailed plan to turn things around. 3. Actively measure the soft qualities Such candidates are seductive but potentially in chief executive candidates – dangerous. Boards should be looking for a candidate many arts board members know how to measure who has a broad (and long-term) perspective, financial results, audience share and so forth, a set of convictions about the organisation’s but are simply not comfortable assessing factors strategic direction, a clearly thought out managerial such as integrity, the ability to provide meaning, philosophy and an understanding of how to galvanise and talent for creating other leaders. There are the entire organisation towards change (effective techniques and approaches for measuring such leadership entails doing things through other people). qualities, particularly through well designed and conducted interviews12 and other selection techniques.

41 Appointing 8.1 the chief executive

A board should give serious consideration to adopting a Board perspective – process that includes, or at least considers, the following the chief executive is responsible to the board as a main steps. whole. It is important, therefore, that the whole board takes an active part in the recruitment 1. Agreeing on the major challenges process. The most effective way to do this is to have facing the organisation and a thorough discussion at the start of the process to developing an agreed description define the desired qualities sought in the new of the qualities of the preferred appointee. Again, a facilitated workshop is candidate – worthwhile. The aim is to consider staff perceptions the critical starting point is for the board to develop gained through the previous step and to agree on the a clear and agreed description of the type of person key attributes sought and the key result area that the it feels will provide effective leadership to the new chief executive is to achieve. organisation over the next three to five years. To a significant extent this will flow from the board’s 2. Searching and short-listing understanding of the challenges facing the sector Assigning board responsibility – and the organisation itself, of the strategic results If it wishes to, the board can then delegate the the board wishes the organisation to achieve and recruitment process to a board committee set up to of both the internal and external ‘environmental’ oversee the next phases of the process. A smaller conditions that it anticipates affecting it over that group than the full board is often preferable to time period. provide effective liaison if recruitment consultants The two most important sources of are used during the search and short-listing phases information for this purpose are within the and to ensure confidentiality is maintained organisation itself – namely staff and board throughout the process. members themselves. These perspectives are both Recruitment consultant – important and can give clarity and focus to the the committee might be delegated by the board to recruitment process. appoint an external recruitment consultant to assist Staff perspectives – with the production of a short-list of candidates obtaining a staff view on the challenges facing the meeting the board’s specifications. organisation and the characteristics that should be Within an agreed budget the task of that sought in the new chief executive will provide the adviser could be to undertake an advertising and/or board with a valuable insight into staff perceptions ‘search’ process to produce a short-list of say three of the type of leadership they require to give their to five candidates for more detailed scrutiny by the best. It will also give the board a snapshot of the committee. Typically this process would involve internal health of the organisation. A process like documentation on the attributes of each of the this should also be designed to increase key short-listed candidates including, ideally, that gained stakeholders’ sense of ‘ownership’ of, and support from psychometric testing. There are many different for, the appointee. One way of doing this is to have views about such testing but it provides additional a facilitated focus group discussion to which staff and often vital information to ensure that the representatives or all staff are invited. Apart from its ultimate appointee is a ‘good fit’. general value this will assist the board in making a decision about the desired profile of the new chief executive and in choosing the best-suited candidate. Depending on its time frame and budget the board might also consider combining with this process an organisational climate survey. The conclusions from such a survey can be used to good effect as the basis for the focus group discussions or it can be simply a separate and independent source of information to further its understanding. In the design of such a survey the board should aim to gain a picture of the current situation compared to staff views of the ideal. This would give it an indication of the particular strengths it should seek in the new chief executive.

42 Appointing 8.1 the chief executive

Simulation testing – Appointment – There is increasing evidence that reliance on the the final step in the process could once again revert standard approach of interviews and reference to the committee to oversee reference checking checks – even when supplemented by psychometric and the finalisation of the new chief executive’s tests – does not necessarily produce a candidate employment contract within terms agreed to by the whose actual on-the-job performance will meet the board. The contract and performance expectations board’s expectations. If resources permit, short- should fully reflect the board’s expectations. listed candidates should experience an intensive, It is wise to take specialist advice on both the tailored simulation of the types of pressure they employment contract and performance agreement will face on the job. There are firms that specialise aspects of the appointment. in this type of testing for senior executive There have been unfortunate examples in appointments. New Zealand arts organisations where the chief From these steps it should be possible for the executive has, in effect, been left to write his or her committee to recommend a preferred candidate own contract. In one case this created a virtual job (or perhaps two) to the full board for final for life on the chief executive’s own terms and consideration. conditions. When the board decided that new skills When deciding how much of this suggested and perspectives were needed in the role, the process to undertake, a board should always organisation could not afford to buy the existing London: Hutchison Arrow Books Ltd. 1994. Chapter 3. 1994. Books Ltd. Arrow Hutchison London: The Empty Raincoat. Charles Handy. p 52. 1994. Books Ltd. Arrow Hutchison London: The Empty Raincoat. Charles Handy.

remember that most hiring decisions are made chief executive out of the contract. The alternative 6 7 primarily on the basis of easily identifiable or process of managing them out of the role on the recognisable characteristics. These are usually the basis of diminishing effectiveness was simply types of things that can be listed on a CV – beyond the board’s capability and willingness to for example, a candidate’s experience, skills and contemplate. For a number of years that organisation knowledge. However, this should be thought of as underachieved in relation to its potential. simply the tip of an iceberg. Subsequent ‘firing’ All boards would do well to contemplate decisions are almost always made on the basis of which the most expensive option is: a thorough attitudes and aptitudes constituting that part of the and professional recruitment process, a messy iceberg that is below the surface. A recruitment and expensive termination process or years of process should always be designed to help a board organisational underperformance. understand what is ‘below the surface’. 4. Induction 3. Full board consideration and final Steps should also be taken wherever possible to decision Final selection process – ensure that the new chief executive – particularly if given the extensive process that has gone before, appointed from outside the organisation – is as well the final step would be for the board as a whole to briefed and well prepared as possible. The objective meet the leading candidate(s). By this stage it could is to get the new person ‘fully functional’ as soon have considerable confidence that an interview/ as possible. discussion with the short-list of candidates recommended by the committee would allow it to reach a final decision. At this point it may be little more than a question of the board assessing the degree of chemistry it has with the candidate(s).

43 making clear the extent of 8.2 delegation to the chief executive

The board should do nothing that undermines its ability An effective and productive board-chief executive to hold the chief executive accountable for operational relationship is built around: performance. A particular risk is that the board (or any • mutual respect for their separate but mutually individual board member including the chairperson) interdependent roles and responsibilities starts directing the chief executive or even worse, other staff, as to how something should be done. When this • a clear and unambiguous definition of the results to occurs it takes over part of the chief executive’s job be achieved itself and he or she can no longer be held accountable • clearly defined and documented delegation for the result. and authority The board’s basic operating assumption must be that a competent chief executive is fully capable of managing • mutual agreement about the boundaries of freedom and overseeing all operational matters. While the chief granted to the chief executive in order to carry executive may seek and accept advice from the board out his or her role and tasks or individual board members this should be viewed as • a fair, ethical and transparent process for evaluating no more than the chief executive gathering information the chief executive’s performance from a variety of different sources in order to make an effective decision. • an ability to engage in robust debate, and a mutual The chief executive should be delegated maximum willingness to challenge and to offer and receive authority to manage all operational matters. The board’s constructive criticism. job is to judge the results achieved and to hold the chief In essence, these mean that the board must do its job executive accountable for those results. first. Once the board has made clear its delegation to the chief executive, it must respect the agreements reached and refrain from giving instructions to, or evaluating, any staff member who reports to the chief executive. That does not mean that board members should not be free to talk with other staff, but they must take care to ensure that in the normal course they do not come between the chief executive and his or her staff.

constraining the 8.3 chief executive’s freedom to act

It is imperative that the chief executive knows what he • ‘lay’ board members are better able to make an or she can do without having to refer back to the board. input because this approach does not require them The chief executive should not be faced with having to to try and tell the chief executive how to do his or continually seek board permission to carry out ‘normal’ her job – only to identify the things that should operational actions. not happen to and in the organisation The most effective way of doing this is to define • the provision of clear boundaries gives greater ‘boundaries’ for management action using a proscriptive certainty of expectations for the chief executive or limitations format, stating what cannot be done, and less ‘second guessing’ by the board rather than what can or should be done. This may, at first, seem a negative approach but it is one that is • there is increased empowerment for the quite commonplace. Think, for example, about the chief executive Ten Commandments and the Road Code. The main • there is increased likelihood of innovation in the advantages of a ‘thou shalt not’ approach are that: ‘means’ chosen because operational approaches are • the board has better focus, clarity and more not prescribed by the board effective overall control • board agendas become less cluttered by the chief executive seeking permission to do things.

44 constraining the 8.3 chief executive’s freedom to act

Once the boundaries are proscribed, the chief executive exposure to risk. Accordingly the CEO shall not pursue is free to work within them using his/her professional or in any other way support any fund-raising activity judgement to make decisions and take all actions or process which: appropriate and necessary to achieve the outcomes and 1. In any way involves any person, either as a staff priorities agreed by the board. member or as an agent of an outside organisation, The board has the right to impose as many when that person is known to have been associated limitations as it chooses and to define these to whatever with embezzlement or has been convicted for level of detail it considers necessary. It must reach the any form of this. point, however, where it is confident that it will be able to support the chief executive in making ‘any reasonable 2. Involves (name of organisation) utilising interpretation’ of its words. If it cannot do this it may organisational funds in order to match a similar need to specify more detailed policy (narrowing still investment by an outside agency or utilises further the scope for chief executive interpretation). financial reserves or current account to float Alternatively, it might be forced to conclude that it does a fund-raising venture. not have the necessary confidence in its chief executive 3. May bring the name of the organisation and, therefore, should seek a replacement. into disrepute. On a regular (at least annual) basis a board should examine the key risks facing the organisation. In terms Communication and Support of its stewardship role it must ensure that those risks The CEO shall not allow the board to be uninformed or that could have the greatest impact on the organisation unsupported in its work. Accordingly the CEO shall not: and the most probability of occurrence are adequately 1. Neglect to provide information in a timely, covered by policy. ‘Executive Limitations’ policies may accurate and understandable fashion, addressing the be thought prudent to cover various categories of risks various issues to be monitored by the board. including the following: 2. Neglect to provide financial reports that make clear • budgeting/financial planning (a) significant trends • financial condition (b) data relevant to agreed benchmarks and • investments board-agreed measures, e.g. financial ratios • remuneration and benefits to be determined by the board. • protection of assets 3. Fail to inform the board of significant trends, • property management/physical resources implications of board decisions, issues arising from • ends focus of contracts or grants policy matters or changes in the basic assumptions upon which the board’s policies are based. • business continuation • treatment of staff 4. Fail to inform board members when for any reason • equal employment opportunities there is actual or anticipated non-compliance with a board policy. • communication and support to the board • treatment of customers 5. Neglect to inform the board of any serious legal • programmes and services conflict or dispute or potential serious legal conflict • public awareness. or dispute that has arisen or might arise in relation to matters affecting (name of organisation). This is not intended to be an exclusive nor exhaustive list. There may well be other types of risk that individual 6. When gathering information for fully informed boards would identify as relevant to their particular board choices neglect to provide a wide a range of views and perspectives. situation. Similarly, some of the risks topics on the list may have little relevance to some boards. 7. Fail to inform the board of such occasions when it The following are illustrations of this type of policy. violates its Governance Process or Linkage policies,

Fund-raising particularly when this relates to the CEO’s ability to carry out his or her responsibilities. With respect to (name of organisation)’s fund-raising programme, fund-raising activities shall be designed 8. Fail to deal with the board as a whole except when to ensure maximum financial return with minimum responding to individual requests for information or requests from board committees or working parties.

45 the chief executive/board 8.4 chair relationship

The chief executive is employed by the board as a whole. interpretations of board policies and to discuss ideas Only decisions or instructions of the board acting and options. However, the chair should take care never together can, therefore, be binding on the chief to be tempted to give, or remove, permission to the executive. This means that, excluding extraordinary chief executive to carry out operational actions. circumstances, the chair should not personally issue All operational decisions, within policy, should be the instructions to the chief executive. choice of the chief executive who is then held to Given their respective responsibilities it is likely account for the effectiveness and appropriateness of that the chair and the chief executive will often meet his or her choices. or communicate outside scheduled board meetings. In many arts organisations, particularly those that, Great care should be taken, however, to ensure that because of limited resources, are largely ‘working this forum does not serve as a de facto board meeting. boards’, the separation between the board and the chief It would be rare for the chair to receive ‘official’ executive is not as distinct as might be desirable. In these information from the chief executive that should not circumstances it is important that the chair, at least, also be made available to other board members. has a clear sense of the separation of powers and can The chief executive/chair roles are integral parts of the intervene when necessary, perhaps even acting as a total leadership team, but together they should ensure protective ‘heat shield’ for the chief executive when that their actions do not exclude the rest of the board. needed. Regardless of organisational circumstances, Regular chief executive-chair liaison can provide the chair should never come between the board and a useful opportunity for the chief executive to test the chief executive.

evaluating the chief 8.5 executive’s performance

It is hard to overstate the importance of effective chief of the organisation as a whole. The only exception to executive performance management by a board. The this general rule is if the chief executive does not starting point for the board in this regard should always control the resources necessary to achieve the stated be to consider how it can ensure that the chief executive results, or has not been delegated the authority needed. succeeds in the role. However, an apparent weakness in Every board meeting that reviews organisational arts governance in New Zealand (and, it has to be said, achievement can be regarded as a component in the in many other sectors as well), is that boards have assessment of the chief executive’s effectiveness. It is generally not ensured that systematic and objective still important that there be, from time to time (no less performance management processes are in place. This is often than annually and ideally every three to four likely to have been to the disadvantage of both boards months), a formal assessment of the chief executive’s and the chief executives reporting to them. In certain performance against the board’s expressed expectations cases boards have not been able to deal with perceived (ends and limitations). The continuous feedback and inadequate performance and nor have chief executives active communication that is integral to such an had clear expectations to work to, nor regular, objective approach helps guard against the potential for a growing and constructive feedback on their performance. gap in expectations between a board and its chief A chief executive should be evaluated only against executive. Such gaps grow in an almost imperceptible objective and previously agreed-to performance criteria. fashion, but are nevertheless real and can eventually The chief executive should also be evaluated only in result in an irretrievable breakdown in the relationship. respect of those matters for which he or she has been When conducting chief executive performance delegated full operational authority. The chief executive evaluations, boards should be careful what information should not be held to account for the performance of is used. Only information relevant to a consideration of personnel or groups that he or she did not personally whether or not the organisation has achieved the ends or select or have full managerial authority over. outcomes set by the board and that the chief executive This may apply particularly to those situations where has complied with any ‘limitations’ policies should be artistic matters are determined independently of taken into account for performance evaluation purposes. the chief executive. It is inevitable that various stakeholders (including staff) If a board has an effective policy framework of the will offer board members opinions about their chief type illustrated in this guide, it need make no distinction executive’s performance. Sometimes these will be between the chief executive’s achievements and those positive, at other times negative. Often such opinions

46 evaluating the chief 8.5 executive’s performance

will have little to do with the board’s expressed • An additional step should be a more expectations and more to do with, for example, the formal ‘wrap-up’ every three to chief executive’s personality traits. Great care should four months be taken in allowing such opinions to influence an This is a way of focusing more particularly on the evaluation of the chief executive’s performance. chief executive’s performance. It provides a chance There is a very real risk that the chief executive to reset expectations if necessary. performance management process can become overly Who should do it? focused on the past and what is wrong, rather than on The board should not leave the chief executive the future and what is right. If the process is solely used performance review to the chair because the chief to catch the chief executive making mistakes it will executive is accountable to the board as a whole. Also, quickly become discredited, particularly in the eyes of if he or she gets on well with the chief executive, the the chief executive. As much as anything else it should chair could be prone to exaggerating their achievements be a process for allowing the board and chief executive and protecting the chief executive from the truth about to identify and agree on future initiatives that will assist any concerns with his or her performance. On the other the chief executive, as well as the organisation, to succeed. hand, if the chief executive does not get on well with Checklist of key elements in chief the chair, this could also spell trouble. executive performance management: The board should, therefore, adopt a process whereby all board members have to think about and express Planning themselves on the way the chief executive is doing the job. • Keep it simple The chief executive can help trigger the board’s The board should clearly express the desired results thinking by preparing a self–assessment. This will help for the year and nominate priorities and (if necessary) board members to structure their thoughts. weightings in the form of an annual performance Some of the most useful feedback for both the board agreement. Ideally, expectations should be and certainly the chief executive will come from staff unambiguous. Measurements should be tied to the provided this is collected in a systematic and professional desired outcome not to the input or activity. This manner. Some chief executives worry that staff feedback should flow from the organisation’s strategic and is risky to them personally because they may not be business plans. A job description is a relatively static popular with staff. However, board members have a way document not suitable for this purpose. of finding things out – anecdotal evidence can be far more damaging than properly designed and conducted • What is to be achieved? climate or staff feedback surveys. It is important for Desired results should be defined as clearly as possible both the board and the chief executive to understand even though this is not always easy. Few arts how people in the organisation feel about the chief organisations can rely on the simple outcome executive’s leadership. measures that can be used in a commercial environment (e.g. profitability, or return on capital). Reset expectations It is also possible that behaviour (or behavioural- Performance expectations should remain as current related processes) like stakeholder management as possible. It may be asking too much for a board to may be just as important in non-commercial remember nine months down the track that it implicitly environments. agreed that the budget targets were unrealistic. Make Performance monitoring the need for change explicit. Formal expectations should be changed when necessary. • Performance monitoring should be continuous Discussion Topics The board should avoid rushed, once-per-year 1. Does the board have in place soundly based reviews. These are heavily influenced by recency. documentation in regard to its employment Continuous informal feedback is best. It should be relationship with its chief executive affirmative as well as identifying any concerns. (employment contract, etc)? • The board should understand that 2. Does it regularly (at least annually) document its regular reporting is part of the expectations regarding the performance of the performance review process chief executive? When the chief executive provides his or her regular reports to the board on organisational achievement 3. Does it actively monitor and provide regular these provide a chance for the whole board to be constructive feedback on chief executive involved in a timely (chief executive) review process. performance? Such reports should be in accordance with a board- 4. Does it have a policy framework in place that clearly approved monitoring schedule (see Section 9.2) expresses the organisational ends or outcomes to be achieved and the situations and circumstances to be avoided?

47 [ credit Robert Catto www.catto.co.nz

48 Toni Huata and Mina Ripia perform as a part of Tama Tu Tama Ora, presented by the 2008

] New Zealand International Arts Festival. monitoring and evaluating results and achievements section9

It is an important part of the board’s job to monitor organisational performance to ensure that the organisation is achieving specified results and meeting the standards required.

49 measuring outcomes 9.1 not effort

It is an important part of the board’s job to monitor organisational performance to ensure that the organisation is achieving specified results and meeting the standards required. While it is often easier to measure rates of activity (e.g. the number of exhibitions, performances etc.) the board’s focus should be on the achievement of desirable outcomes (e.g. satisfied patrons), rather than on the effort expended by the chief executive and staff to achieve those results.

monitoring 9.2 systematically

A board is entitled to review any governance policies Monitoring Chief Executive Performance at any time, using any method it chooses. However, The chief executive’s performance will be continuously, it is good practice to establish a prior monitoring systematically and rigorously assessed by the board schedule (an example is shown below) which lists against achievement of the Results policies and policies and sets out the method and source for compliance with Chief Executive Limitations policies. acquiring information13 and the frequency of monitoring The board will provide regular performance feedback the policy. The chief executive should, in effect, be to the chief executive. required to produce compliance reports against each 1. The purpose of monitoring the chief executive’s of the policies that relate to his or her responsibilities. performance is to determine the extent to which The board should separately review any policies that the board’s policies are being met. Only data define and relate to its own job. Some policies may be relevant to the board’s policies will be considered reported against at every board meeting (e.g. actual to be monitoring data. performance compared to financial policies), while the board may feel others need less frequent monitoring. 2. The board will acquire monitoring data by one or more of three methods: (a) by direct chief executive reporting to the board (b) from an external, disinterested third party selected by the board to assess compliance with board policies, and (c) by direct board inspection, in which a designated director or directors assess compliance with the appropriate policy criteria.

0502 monitoring 9.2 systematically

3. In every case, the standard for compliance shall be 7. If at any time the board engages an outside evaluator that the chief executive has met or can demonstrate to assist the board to conduct an assessment of the compliance with the intent or spirit of the board chief executive’s performance, the process must be policy being monitored. consistent with this policy. Any such evaluator is a contractor to the board, not the chief executive. 4. There will be an annual formal appraisal of the performance of the chief executive. The timing, format and process for this meeting will be POLICY method frequency month negotiated between the chief executive and the Financial condition Chief executive report Annually board at the beginning of the performance Budgeting and Chief executive report Annually monitoring period. financial planning Investments Chief executive report Quarterly 5. A board committee may assist the board in this Remuneration and External Annually process which may make recommendations to benefits Protection of assets Chief executive report Six Monthly the board. Emergency chief Chief executive report Annually executive succession 6. All policies that instruct the chief executive will Treatment of staff Chief executive report Annually be monitored at a frequency and by a method Communication and Direct inspection Six Monthly chosen by the board. The board may monitor support to the board Treatment of External Annually any policy at any time by any method, but will consumers/members ordinarily depend on a routine schedule Public affairs Chief executive report Six Monthly (see illustration below). For example, an internal report (from the chief executive), an external (independent) report or the board’s own direct inspection. inspection. direct own an external an internal (independent) report report the chiefor board’s (from example, executive), For 13

providing the board with the 9.3 right information

Board members have a right to receive information from the board it may need to seek external advice on the management in an understandable and accurate form. quality of artistic achievement. Some New Zealand Time should be devoted to deciding what the key arts boards take close notice of published reviews by performance variables are that the board must monitor arts critics. Others may engage specialists to conduct in order to accurately judge the health of the enterprise. a peer review. The form and detail of monitoring information should In order for the board to have control over but be be relevant to that required for sound governance free from the complexity of staff operations and thus decision-making. A board’s time is too valuable to allow focus on strategic thinking, there needs to be clearly its meetings to get bogged down in micro-managing stated and agreed processes for keeping the board operational detail. informed about the outcomes of staff effort – without Board monitoring should demonstrate a broad, encouraging board involvement. This balance is often balanced concern for all aspects of organisation difficult to achieve. While, individually, many board performance, not focusing on one aspect (e.g. finance) members will be interested to know about the details to the exclusion of other matters. For example, in arts of day-to-day actions and events in the organisation, organisations the board will want to monitor the quality these are often, in themselves, of little relevance or of artistic achievement relating to the ultimate purpose use to the board in carrying out its governance of the organisation. Depending on the composition of responsibilities or doing its strategic thinking.

51 providing the board with the 9.3 right information

What the board should know about is the At the board meeting, represented by the upper governance implications of those actions and activities. portion of the diagram, the board discusses the Instead of merely reporting the actions, the chief implications of the chief executive’s report, at all times executive should be interpreting and reporting on these staying in its governance role and thus keeping the in terms of the board’s responsibilities and concerns. debate at the strategic level. Outcomes of the board The following figure-of-eight diagram represents the discussion are then translated into management or flow of communication between the chief executive operational thinking by the chief executive and taken and the board. Events and activities occurring in the back into the operational arena to be implemented, lower operational portion of the diagram are reported evaluated and reported against at a future board on by the chief executive in terms of their impact on meeting. For example, the board’s desire for more the board’s desired strategic results. For example, improved stakeholder understanding of organisational the chief executive might report on the implications objectives would be taken away by the chief executive of higher than expected staff turnover (an operational and translated into various options for, say, more issue) for the achievement of planned results frequent communication with those stakeholders. (an obvious board concern). This type of interaction, with each party respecting the other’s roles, facilitates an ongoing dialogue between the chief executive and the board around key strategic issues.

The CEO reflects on the Strategic thinking The board discusses board’s strategic thinking, the CEO’s report translating this into always staying at the operational actions. governance level.

The CEO reports on the governance implications of operational events and actions. Operations

Chief executive reporting to the board is the fuel for the board’s strategic thinking.

52 the board’s 9.4 organisational ‘dashboard’

With regard to board reports, board members the type of information that will help it look to the often experience: future and anticipate both opportunities and challenges. The following questions may be helpful in developing • overload – too much ‘data’ and not enough a board’s initial dashboard even though this tool will ‘information’ undoubtedly evolve considerably over time. • an inappropriate level of detail (both too much • What are the performance indicators that tell us and too little information) most about whether this organisation is • poorly presented information which is difficult making progress? to interpret and assess for its significance • What are the most significant risks we face and because important information is ‘buried’ what are the relevant performance indicators? amongst much that has less materiality • For ease of understanding and interpretation, • information which has a management rather what are the best ways to display each of than a governance perspective these indicators? • information which lacks an interpretive context • What comparisons (e.g. current versus past periods, (that explains why the information is being measure-to-measure ratios, etc.) would be reported to the board; what should the board most informative? take from it, etc). • What will constitute a sufficiently material To avoid these types of problems and to make more divergence from expectations that it should productive use of board (and management) time, a be reported to the board? useful concept is a board information ‘dashboard’. In a car, the dashboard instruments give the driver a quick • How frequently do we want to receive reports? snapshot of the state of performance of the vehicle. Each board will need to determine which dashboard They tell at a glance the speed at which the car is ‘dials’ are likely to be of most relevance and usefulness travelling (speedometer), how hard the engine is to their organisation. An example that many in the arts working (rev counter), how much fuel there is left sector might find relevant is a ‘diversification of revenue’ (fuel gauge), how far the vehicle has travelled dial. If the board identified diversification of revenue (trip meter), and so on. sources as a major performance indicator (e.g. to spread Similarly, an arts board can use the equivalent of the funding risk), it might use a simple chart to track the a ‘dashboard’ to determine which information it needs changing percentages of income by source on, say, a on its journey to a desired location. So, for example, quarterly or six monthly basis. Another example it can travel at a safe speed (within available staff acknowledges that an arts organisation is no different resources), avoid running out of gas (cash), track from any other organisation in the sense that it must distance travelled (progress towards goals, milestones) remain financially solvent. The graph of the ‘current and maintain reasonable fuel economy ratio’ in Section 11 demonstrates how presenting critical (operational efficiency). financial data in graphical form allows even members Such dashboard measures should be presented so the who are not financially literate to understand both the important numbers can be easily interpreted for their current state of play and the longer term trend. meaning and significance. That way, the driver’s attention is not unduly distracted from the road ahead. This means boards must identify the information that they need from staff so that they can adequately monitor and evaluate whether their organisation is on track to delivering on its purpose. Another thing we can draw from this analogy is that the dashboard information should, as far as possible, be future-focused so the board is not forced to steer by looking in the rear vision mirror. Traditionally, the information on which governing boards have focused has been backward looking, historical data. There is a need for more of

53 the chief executive/board 9.5 chair relationship

Effective monitoring and evaluation of organisational Discussion Topics performance are key aspects of the board’s overall 1. Has the board made a clear statement of the strategic thinking process. One aim is to ensure that matters on which it must be kept informed? the rate of organisational learning exceeds the rate of 2. Are these more focused on the achievement change in the environment – in other words, it enables of results than on, for example, the volume the board and chief executive to keep ahead of the play. of activity? This has been described by Ross Ashby as the law of requisite variety which stipulates that, for a system to 3. Does the board feel that it has its ‘finger on preserve its integrity and survive, its rate of learning the pulse’ (i.e. does the board receive regular must at least match the rate of change in the environment. reports on important organisational performance indicators that are timely, accurate and easily understood)? 4. Do board members feel that they are part of a continuous learning process about organisational performance and the matters affecting that? e Th . . ing at m obin com oir perfor . Ch ugust 2008. ugust 2008. ollege C annwyntobin . rist’s ing, A B ig S ing, Ch www T by A nnwyn P hotography

[credit]

54 a strategic risk management framework section10

Examples of organisational failure in the arts sector are, unfortunately, not hard to find. Often this has resulted from a board failing to identify and characterise the risks facing the organisation and to see that strategically important risks were managed appropriately and effectively.

55 what 10.1 is risk?

Risks are uncertain future events that could impact on the but without change there can be no progress. organisation’s ability to achieve its objectives. Most organisations, therefore, cannot do business There are events that your board cannot fully foresee without incurring some level of risk and must learn that may make your organisation’s tomorrow much not only to tolerate, but to thrive on, a certain level different than it is today. Such events may happen of instability and unpredictability. Although there suddenly and unexpectedly. Generally a risk encompasses is a natural tendency to think of risk as protecting both threats of losses and opportunities for gains. the organisation from something ‘bad’ – such as loss The challenge is to determine – in terms of your of reputation – a board that is very conservative organisation’s purpose – if the gains will outweigh (risk averse) can damage an organisation just as much the losses. as a board that has an over-lenient or reckless attitude. Risk is an essential and unavoidable component Risk management is the process by which the board in any organisational situation. Every organisation, and the chief executive ensure that the organisation whether commercial or non-commercial, exists in the deals with this uncertainty to its best advantage. larger world, which changes continuously. Most Organisations face both internal and external risks. organisations, by their very nature, actively seek change. Internal risks are managed via the establishment of The sought-after change might be the well-being of the policies that address specific aspects of operational risks. creative personnel or the audiences that are the focus Having established acceptable levels of risk and defined of the organisation’s mission. Change brings risk, measures such as Limitations policy boundaries (see Section 8.3), the board should expect the chief executive to make all further decisions and take all further actions necessary to minimise the possible negative impacts and maximise the positive opportunities arising from risk-taking. Subsequent management reporting should provide assurance to the board that those risks with a greater probability of occurrence, and whose potential negative impact is high, are under close scrutiny and that there are appropriate control or mitigation mechanisms in place.

0562 strategic 10.2 risk management

Traditionally, the discipline of risk management has Even though most arts boards’ thinking errs towards been devoted to addressing threats of accidental loss. being over-optimistic there are many boards that are also In this context, the most that the process of risk ill-prepared to take advantage of windfall opportunities. management could ever accomplish was to reduce For example, if your organisation had never prepared for or eliminate losses from, say, accidents to art works the offer of a large donation from an unexpected source, or facilities. Another important perspective, however, when a potential benefactor did appear you may be is that of non-accidental risks. This would cover, unable to respond promptly or coherently. for example, losses from poor programming judgements The benefactor may be forced to conclude that your or from errors in forecasting audience numbers. board had no clear, inspiring plan to use the sum offered It is also very important to consider the possibility and that another cause or organisation would better be of gain from risk. able to put the proffered donation to effective use. As in other aspects of the board’s job it is important Some thoughtful long-range planning, even ‘dreaming’, to adopt a more broadly based and strategic approach. should enable the board to visualise its future options Strategic risk management embraces both possible to the point that the organisation could respond gains and losses from risk. It seeks not only to counter constructively and rapidly to an unexpected and all losses, both from accidents and from unfortunate generous offer. business judgements, but also to seize opportunities A strategic approach to risk management is for gains through organisational innovation and growth. conspicuously proactive. It counters ‘downside’ risks Effective and strategic risk management is vital if your by reducing the possibility of something unwanted organisation is to be all it can be. happening (probability) and the impact (magnitude) Section 7 emphasised the importance of the board of losses if it did, and by resourcing/financing recovery establishing a clear sense of organisational direction and from these losses. It seizes ‘upside’ risks by searching important deliverables. What a board expects the future for opportunities to more fully, more certainly and to bring and how it prepares for its vision of the future more efficiently achieve its mission and by developing greatly affect the amount of risk confronting the plans to act on opportunities as they present themselves organisation it governs. For example, if a board has one in the future. set of very specific expectations and is unprepared for There are five main reasons why a board needs to any other version of the future to unfold, it puts its ensure that its organisation takes a strategic approach to organisation at great risk. Strategic risk management is risk management and that it is always well able to handle about visualising a range of other future scenarios and risk effectively and to advantage. These are outlined below: having a Plan B, a Plan C and perhaps even a Plan D in • To counter losses – place. This may lessen the likelihood of an unpleasant this typically involves reducing the probability, surprise for the organisation. It will certainly ensure magnitude or unpredictability of accidental losses. that it is better prepared for a different eventuality Techniques for reducing accidental losses usually whether negative or positive. involve either avoiding or modifying the activities No board expects, for example, that its chief that may generate accidental losses. Traditionally, executive will be incapacitated but if it has not risk management also involves putting in place considered the possible consequences of something financing arrangements that will assist recovery untoward happening, it would almost certainly be from accidental losses that cannot be prevented. surprised and unable to respond appropriately if the This is often done by preparing the organisation to worst were to happen. If your board has ensured that absorb the financial burden of possible losses itself, it is prepared for a broad range of potential future or by finding ways of sharing the possible burden outcomes, it will face less uncertainty and less risk. If with other organisations (e.g. by taking out insurance). the chief executive was to suddenly become unavailable it may not lessen the surprise, but it would certainly • To reduce uncertainty – reduce the impact. The same is equally, and possibly even uncertainty can be reduced by gathering more more, true in regard to artistic product. What would data to improve understanding and predictions happen, for example, if the overseas guest conductor of and by anticipating and preparing for a wider the orchestra failed to arrive, or if the lead opera singer range of outcomes. was suddenly taken ill, or if the lead dancer broke their leg? In the visual arts sector, what would happen if a wharf strike prevented the unloading of a valuable international art collection? Few arts organisations can afford bad luck of this kind.

57 strategic 10.2 risk management

• To take advantage of opportunities – • To fulfil a worthwhile purpose – organisational success is frequently characterised not-for-profit arts organisations perform many by innovation and the ability to see and take functions in the community that neither advantage of possibilities others may have overlooked. governmental nor commercial enterprises could, Strategic risk management not only helps in or would wish to, perform. In return, both central identifying opportunities for gain, but also better and local government grant those organisations positions an organisation to seize those opportunities. a variety of financial and other significant advantages that other types of enterprise do not enjoy • To be a good corporate citizen – (e.g. financial grants, tax free status, etc.). organisations, like individuals, are good corporate citizens when they act according to, or beyond, community standards and expectations. Being a good citizen in this context is about behaving ethically and obeying the spirit as well as the letter of the law. When it consistently acts as a good corporate citizen an organisation tends to be less prone to liability losses (downside risks). It is also more likely to be presented with beneficial opportunities and to gain positive public support (upside risks).

clarifying the board’s 10.3 responsibility for risk

Because, ultimately, the board is accountable for Among the various dimensions of the board’s risk organisational performance, it must be particularly management job is the need to: clear how much risk is acceptable in order to achieve • Characterise risk – the organisational outcomes that are considered ensuring that it has got the key risks facing the worthwhile. organisation in its sights and that it has a good All too often boards implicitly assume that much understanding of their probability and of the risk facing their organisation is technical or potential impact operational and therefore the responsibility of management. While in most cases the board is not • Set the tone and influence the culture of risk directly responsible for the operational management management within the whole organisation. of the organisation, it does carry the ultimate The challenge has been neatly summed up in accountability for the organisation’s performance. the following quotation: At a minimum, therefore, the board should ensure The board’s key role is to ensure that corporate that there is an ongoing process for identifying, management is continuously and effectively striving evaluating and managing the risks faced by the for above average performance, taking account organisation and it should regularly review this of risk.14 process and what it considers to be the most significant risks facing its organisation. For example, is it a ‘risk-taking’ or ‘risk-averse’ organisation? Which types of risk are acceptable and which are not? What are the board’s expectations of staff with respect to conduct and probity? Is there a clear policy that describes the desired risk culture, defines scope and responsibilities for managing risk, assesses resources and defines performance measures?

58 clarifying the board’s 10.3 responsibility for risk

Ultimately the board is accountable for Blah Blah Blah Blah organisational performance. It must be clear how Blah Blah

much risk is acceptable in order to achieve Blah Blah Blah Blah Blah Blah Blah Blah worthwhile rewards. It must, therefore, determine Blah Blah Reputation the appropriate risk ‘appetite’ or level of exposure Litigation Box Office for the organisation. To a significant extent this will Blah Blah reflect the purpose of the organisation. A theatre risks company established to nurture and promote new Chief executive Health and Safety Artistic/ Service work, will have a different attitude to the risks Blah Blah Performance Blah Blah involved in producing the first play of an unknown Blah Blah Blah Blah Blah Blah but talented playwright than a theatre company that Blah Blah Blah Blah typically produces the plays of well-established Blah Blah Blah Blah and commercially successful playwrights. • Actively participate in major decisions affecting Each of the risks identified can then be assigned an the organisation’s risk profile or exposure; ensuring assessment of the likelihood that the risk factor will that important questions are addressed such as, occur and, if it does, what its potential impact could be. should the risk be spread by working with another Where possible, it should be trying to control or organisation or transferred through the use of mitigate those risks that have the greatest significance funder/sponsor underwriting or insurance? for the organisation. This should include even those risks that are beyond the organisation’s ability to influence. • Monitor the management of significant risks to In such cases the board should ensure that the reduce the likelihood of unwelcome surprises by, organisation has a ‘Plan B’ to be prepared to respond for example, receiving regular reports from quickly and appropriately to matters that are otherwise management focusing on key performance and risk beyond its control. indicators, supplemented by audit and other internal Plotting each of these risk factors on a graph, as in Melbourne. The Business Library. 1993. The Business Library. Melbourne. Performance. to Enhance Company Governance Improving Strictly Boardroom: Frederick G Hilmer.

and external reports. 14 the following diagram, can form a picture that helps the • Satisfy itself that less significant risks are being board to more readily see where its attention should actively managed, possibly by encouraging a wider be focused. The higher the potential impact, the greater adoption of risk management processes and the board’s likely interest even if the probability is techniques. relatively low. • Report annually to key stakeholders on the organisation’s approach to risk management, with a description of the key elements of its processes and procedures. To ensure that strategic risk management enjoys effective implementation these different facets of the board’s role, the expression of its expectations and the delegation of its authority to management should be formally documented in policy as discussed in Section 6, creating a formal basis for accountability and an explicit framework for performance-monitoring. A board should review its attitude and approach to risk regularly because the conditions that create risk are changing continuously. One exercise that a board can do on a regular basis (at least annually) is to brainstorm the various risks facing the organisation to create a risk map. The various elements identified are initially placed on a mind map type diagram. There are widely available computer software programs that can be used to help generate such a diagram but this can easily be done on a white board or by putting Post-It Notes on a wall.

59 clarifying the board’s 10.3 responsibility for risk

The Board’s interest in Risk Factors must generally attempt to achieve tough objectives which mean greater risk. The risk that remains depends on the level The board’s primary risk- of control in place, as illustrated by the risk exposure matrix. Less acceptable- related policy No Interest more interest focus even when probability is low Level of Risk Level of Control

TIGHT MEDIUM LIGHT Probability

HIGH Medium High High Minimal Acceptable Intolerable MEDIUM Low Medium High

LOW Low Low Medium

Impact (severity) Exposure to risk (residual risk)

The following table illustrates another useful format for It is important to recognise that improving control is recording the board’s discussion during this exercise. not just about increasing the number of controls or the frequency with which they are operated, but is also

Adequacy of achieved by designing and introducing better controls. Risk Factor (list) Probability Possible Impact Response/ Preparations Increased control obviously comes at a cost: Less than Audience apathy Medium Medium satisfactory • Direct costs – such as administrative staff and Tension between volunteers and High High Medium information systems. professionals • Opportunity costs – such as missed artistic growth Programming that is too ‘safe’ Low High High opportunities or less entrepreneurship. Lack of a shared vision Medium High Poor An organisation will not, therefore, want to deploy

Etc, etc all the controls that might be available or possible when managing risks. Each arts organisation needs to determine its own overall ‘risk exposure’ and ensure The board should regularly review the issues on the risk that this fits with the board’s agreed approach to risk. map and determine whether they are in the right positions on the graph. For example, has a ‘cool’ issue Further Reading become ‘warmer’ (i.e. is it now more probable or would AS/NZS 4360:2004 – a generic risk management it have a bigger impact?) and whether new issues should framework that can be adopted by any organisation. be added and old ones deleted. More information is available on the Standards Many boards delegate this sort of exploration and New Zealand web site www.standards.co.nz. monitoring to their chief executives and staff. There is no substitute, however, for the board thinking for itself Discussion Topics (supported by management) about the organisation’s 1. Does the board systematically and regularly risk environment. Because they have different (at least annually) review the risks facing the responsibilities, board and staff perspectives may organisation? well be different. 2. Has it clearly agreed and communicated the level The board should be conscious that, while risks can of risk it is prepared to tolerate in relation to be managed through the operation of various types of critical organisational performance factors? controls, these will not always eliminate risk; any remaining risk is the organisation’s ‘exposure’ to risk or 3. Does it have clear policies in place that define its ‘net’ or ‘residual’ risk. There is a relationship between boundaries within which the chief executive can an organisation’s objectives, risks and controls and its operate without further reference to the board? risk exposure. To deliver large benefits the organisation 4. Is the board satisfied that there are contingency plans in place to deal with risks that cannot be controlled or mitigated?

60 the board’s financial responsibilities section11

One of the most common risks identified by governing boards around the world is that concerning financial resources – the risk of not having enough money to fulfil their purpose.

61 the board’s 11.0 financial responsibilities

One of the most common risks identified by governing Some aspects of financial governance might be dealt boards around the world is that concerning financial with in terms of prescribed targets and expectations resources – the risk of not having enough money to fulfil (e.g. an operating result target). Other aspects of the their purpose. Research for this publication confirmed board’s financial governance are better expressed using that arts boards in New Zealand devote a substantial the proscriptive or limitations format within the policy part of their time and effort to financial oversight, category Executive Limitations (see Section 8.3). although their approaches differ greatly. Such policies might address some or all of the In terms of risk management a board has a special following topics: responsibility to provide assurance of the financial integrity of the organisation. There is a tendency to rely • chief executive expenditure authority heavily on those board members who have a particular • budgeting/financial planning financial and accounting expertise but all board • working capital members are accountable for financial stewardship, not • net assets and reserves just those members with a relevant formal qualification. • investments This accountability is best achieved by adopting a • general guidelines for financial management/overall governance, rather than a management, perspective. financial condition (revenue, costs, cash flow, Financial governance entails setting a financial policy liquidity, etc.) framework that will preserve and enhance the financial • employee remuneration and benefits health of the organisation and allow all board members, • asset protection. regardless of their level of financial training, to share The board should require regular statements by the in this critical and unavoidable responsibility. chief executive of compliance with the board’s financial policies. Here are two examples of these types of financial governance policy.

Budgeting /Financial Planning Financial planning shall not deviate materially from the board’s Ends policies and Key Results priorities, put the organisation at financial risk, or fail to be derived from a long-term plan. Accordingly, the chief executive shall not produce financial plans or budgets that: 1. Contain too little information to disclose planning assumptions, to allow separation of capital and operational items, or to enable effective projection of revenues, expenses and cash flow. 2. Plan to achieve a bottom line financial result materially different from that determined by the board. 3. Plan to use surplus funds in a manner inconsistent with the board’s Reserves policy. 4. Will result in board-determined targets for financial ratios not being achieved (these ratios must be specified). 5. Fail to provide for the current and future capital requirements necessary to achieve key results and to protect assets.

0622 the board’s 11.0 financial responsibilities

Protection of Assets The chief executive shall not allow the organisation’s 1:1.5”. When the actual cover dropped below 1.5 the assets to be unprotected, inadequately maintained or chief executive was no longer in compliance with the unnecessarily put at risk. Therefore the chief executive board’s policy and could have been expected both to shall not: take remedial action and advise the board of the non-compliance. The measure in the subsequent months 1. Subject plant and equipment to unauthorised showed that the situation improved although not by or improper use, wear and tear or insufficient much. This would be a ‘red flag’ for the board to watch maintenance. this very closely. The numbers for the calculation of the 2. Permit any unauthorised person to handle cash. ratio come out of the balance sheet which not all board Also see Section 9.4 – The board’s organisational ‘dashboard’ organisational The board’s Also see Section 9.4 – members would be able to read with confidence. Pulling 15 3. Process the receipt or disbursement of funds the numbers out (current assets and current liabilities), outside of controls acceptable to the duly calculating the ratio and comparing the actual with the appointed auditor. target, enables all board members, regardless of their 4. Deposit funds in non-board-approved financial level of financial literacy, to see at a glance how ‘liquid’ and other institutions. the organisation is.

5. Allow major assets to be insured for less than what is considered necessary for prudent Success risk management.

6. Fail to protect intellectual property, information, 2.00 and files from loss, improper use, improper Target ratio purposes, or significant damage. 1.50 Policy non compliance 7. Fail to ensure that there are appropriate and 1.00 effective security systems in place to adequately Insolvency risk safeguard against loss, damage or theft of organisation, staff, and patron property. Month by month actual performance vs. target ratio 8. Fail to maintain an appropriate asset register. In addition, standard financial reporting statements As part of its accountability, a board is usually required (e.g. Statement of Financial Performance, Statement to make an accurate and up-to-date statement of the of Financial Position) should be made available to the organisation’s finances each year to stakeholders in an board at appropriate intervals (quarterly is sufficient for annual report. In most arts organisations it is required most purposes). Appropriate training should be that these accounts be externally audited. provided so that all board members can understand and If your board does not have access to professionally interpret these important documents. Financial reports qualified personnel within the organisation (including to the board, wherever possible, should draw out vital board members themselves), external advice should be measures of financial performance and display these sought to ensure that it is setting appropriate financial graphically so all board members can assess the state performance standards and that it is monitoring those of the organisation’s finances at a glance.15 effectively. Remember, all board members, irrespective An example is shown in the following diagram. of their professional expertise are collectively accountable The ‘current ratio’ is a very basic but important measure for the financial well-being of the organisation. of solvency risk. A board must always ensure that their organisation is not ‘trading recklessly’ (i.e. that its not Discussion Topics incurring debts it may not be able to pay within normal 1. Does the board depend unduly on the financial expertise of a small number of its members? terms of trade). Essentially the current ratio measures whether there is enough cash in the bank (or in some 2. What steps has it taken to ensure that all members other relatively ‘liquid’ assets – such as receivables) to of the board are supported to meet their shared meet the organisation’s current liabilities (bills payable, responsibility for effective financial governance of wages etc.). In this illustration the target level for the the organisation? ratio is set at 1.5 (although many organisations would aim at a higher (i.e. more conservative) target of, say, 3. Does the board have in place delegations and other 2.0). Ideally there would be an explicit board-stated policies that clearly define financial management limitation policy saying, in effect, that “the chief parameters? executive must not let the current ratio fall below

63 [ credit www.playmarket.org.nz 64 Playmarket presents The New Zeland Play Series ] the board’s own processes and practices section12

The board is responsible for the quality of its own contribution to organisational performance. Its challenge is to be at least as good at its own job as it expects the chief executive, artistic director and other staff to be at theirs. It must, therefore, take responsibility for the deliberate design of its own processes and practices.

65 the boards own 12.0 processes and practices

The board is responsible for the quality of its own requirements. In addition the board should develop contribution to organisational performance. Its challenge a range of policies defining board protocols and is to be at least as good at its own job as it expects the processes (Governance Process policies). As part of this chief executive, artistic director and other staff to be at the board should consider developing (and managing) theirs. It must, therefore, take responsibility for the its own budget, separate from the operational budget, deliberate design of its own processes and practices. for such matters as governance training, contracting Certain governance structures and processes are external personnel (e.g. for independent auditing of specified in an organisation’s constitutional aspects of organisation performance), attendance documentation. The board must comply with these at conferences and seminars, etc.

board 12.1 membership

Recruitment of members is a constant challenge for containing appropriate documentation about the some arts boards but they should be wary of appointing organisation, its work and its policies and procedures, members just to lend their good name to the providing a ready reference for board members organisation. The ability to provide time and attention throughout their term. Add a glossary of commonly are important prerequisites for board membership used terms and acronyms that may be unfamiliar to new regardless of other attributes like, for example, being board members. If they are not already familiar with it, connected to possible funding sources. some new board members may also benefit from the Arts boards in New Zealand typically seek to recruit opportunity to learn about the way the organisation people with specialist skills onto their boards (e.g. itself works. This part of the induction process might be lawyers, accountants and marketing and business people, delegated to the chief executive or other staff members. etc.). While it is important for many arts organisations Even if only one board member is changing it might to gain access to this type of advice on a voluntary basis create the need for deliberate team-building. It is only these are functional rather that governance skills. after people are comfortable with each other and their As has been done in some arts organisations, it may be roles and have together developed shared expectations preferable to engage those functional skills other than by about the way the board will go about its job that they appointment to the board. What is needed around the will finally function well as a team. Every successful board table is not a team of experts but an expert team. group attends to both its task and its social functions. An arts board should be constantly wary of becoming an If the board only attends to the business side of its work operational committee, rather than a team of governors and the social dynamics are left to chance, the board will giving direction and exercising strategic oversight of remain a group of individuals or a series of small cliques, organisational purpose and performance. not a synergistic team. This does not prevent board members working in A good way to assist induction and the development the organisation but when they do so, they must be of the board’s teamwork is a board development conscious of wearing a different (operational) ‘hat’ (see workshop. To design and lead that workshop, seek the Section 12.6 –‘Board members as volunteers’). assistance of someone who not only understands group Whether board members are elected or appointed, dynamics, but can help the board explore the various every effort should be made to ensure that they bring a dimensions of its governance role and functionality. level of understanding about the purpose of the organisation and appropriate governance skills (or are given the opportunity to acquire these). Once ‘on board’ all new board members should receive a formal and thorough induction into the governance role of the board. This process is the responsibility of the board chairperson. This is helped by having a ‘board manual’

0662 conflicts 12.2 of interest

The expectations and actions of the board and its members 8. Examples of conflicts of interest are when:

set the moral tone for the organisation. A failure to (a) a board member, or his or her immediate manage board members’ conflicts of interest undermines family or business interests, stands to gain the moral authority of many boards. Ideally, potential financially from any business dealings, conflicts should be minimised at the point when board programmes or services provided to members are appointed. Because that is not always (name of organisation) possible each board should also have some form of Conflicts of Interest policy that describes expectations (b) a board member offers a professional service and the processes to be followed when a conflict is to (name of organisation)

identified. Every board should require its members to (c) a board member stands to gain personally declare any conflicts of interest relating to their duties or professionally from any insider knowledge as board members. This is an example of a simple if that knowledge is used for personal or conflicts of interest policy. professional advantage. Conflicts of Interest The board places great importance on making clear any Further Reading existing or potential conflicts of interest for its members. Graeme Nahkies and Terry Kilmister. All such actual or potential conflicts of interest shall be ‘The Successful Handling of Conflicts of Interest’. declared by the member concerned and formally Good Governance No. 62. March-April 2008. recorded in a Members’ Interests Register. Accordingly: 1. Any business or personal matter which is, or could be, a conflict of interest involving the individual and his or her role and relationship with (name of organisation), must be declared and recorded in the register. 2. All such entries in the register shall be presented to the board and recorded in the minutes at the first board meeting following entry in the records. 3. Where a conflict of interest is identified and/or registered, the board member concerned shall not vote on any resolution relating to that conflict or issue. 4. The member shall remain in the room during any related discussion only with the board’s approval. 5. All such occurrences will be recorded in the minutes. 6. When the chairperson is aware of a real or potential conflict of interest involving one or more board members, the chairperson must take whatever steps are necessary to ensure that the conflict is managed in an appropriate manner according to this policy. 7. Individual board members aware of a real or potential conflict of interest of another board member have a responsibility to bring this to the notice of the board.

67 board 12.3 meetings

The productivity and effectiveness of a board is based Monitoring reports and many procedural items (even on a clear understanding of both theory (for example, confirmation of the minutes of the previous meeting) the role and responsibilities of the board as distinct from can be scheduled later in the meeting. These are (or management) and practice (the pragmatic way in which should be) the subject of previously circulated written the board actually goes about its work). Where these most reports and can thus be taken as read if the meeting obviously come together is in the conduct of the board runs out of time. meeting and this is where it can all go wrong. Board Over a 12-month period, board meeting time meetings should focus on governance responsibilities, allocation should reflect an appropriate balance between such as purpose, policy-making and performance review, the need to ensure that the organisation is in compliance ahead of operational matters that have been delegated to with statutory and contractual requirements and is others and other issues that have no material importance. attending to those matters that relate to improving In reality, is all too easy for a board to become distracted organisational performance. by operational activities and miscellaneous trivia to Board meetings should be managed so as to encourage which the board can add little or no value. a diversity of views and opinions and to ensure input from The meeting agenda is the crucial starting point. all board members without prejudicing effective and This is the board’s work plan – its statement of what it efficient decision-making. The board’s culture should thinks is important enough to justify consumption of encourage openness and honesty of expression. its valuable time. Individuals should not be allowed to dominate board The board should always have control over its own discussion and each person should be encouraged to meeting agenda. The chief executive might have input develop active listening skills. Behaviour around the into the agenda, but a board meeting is not a management board table should be respectful and each person should meeting. All matters on the agenda should reflect the be expected to disagree without being disagreeable. board’s governance interests and responsibilities. The chief executive and other senior staff should be A particular focus of the board should be the expected to take an active part in the discussion. development and monitoring of policy. As part of its They should be encouraged to speak freely but not be ‘duty of diligence’ the board should ensure that its allowed to dominate. The board meeting is where the policies are being implemented as intended. There board does its work. Staff have an important role to should be an expectation that the chief executive will support the board’s work, by providing good information, report regularly to the board on the implementation analysis and advice, but must respect the board’s of these policies. responsibility to govern. A board meeting will, ideally, be the forum for The board should meet as often – and for as long extended, in-depth discussions about critical strategic – as it needs to carry out its governance duties. While issues. This discussion should include not only the full many governing bodies meet every month this may not board and the chief executive but, where relevant, other be necessary for effective governance. Boards should staff and knowledgeable outsiders. Board meetings also be conscious of the demands frequent board should provide ample opportunity for the board to meetings place on, often limited, staff resources. ensure the ongoing relevance and appropriateness of the Pay attention to good meeting management. strategic results it has defined and other policies it has Arts board members are often people with significant adopted. demands on their time. They will not want to be The board must ensure that its decisions are involved in meetings that waste their time dealing with properly taken and clearly stated so that it can speak matters that are of little consequence, of interest to or with one voice, regardless of whether or not there is a involving only a small proportion of board members dissenting minority. Remember that clearly stated board or that should be left to the staff to deal with. The time policies provide an agreed basis for action and establish a a board spends together is its most precious (and framework for delegation of operational responsibilities limited) resource. Make sure it is used to best effect. and for monitoring organisational performance. At the end of each board meeting ask each member Meetings should generally adopt a future, rather to answer this question – “did we make the best possible than a past, focus. It is easy to spend the greatest part of use of our time together today?” Use their answers to the board’s meeting time analysing data about past plan your next meeting and continuously improve performance and many do. While it is important to your teamwork. observe trends and understand what lessons can be learned from past efforts the board should not be steering the organisation by looking in the rear vision mirror. For that reason the earlier part of the meeting should focus on strategic issues and important decisions.

68 Typical agenda 12.4 distractions

There are some common reasons why board meetings Non-policy-related matters are often unproductive which are easily avoided given If the board accepts that its main focus should be on sensitivity to them. policy making and review, it follows that the board meeting agenda should reflect this. Matters that do not Confirmation of the minutes relate to policy in some way should not find their way This is often treated by those who were not present at onto the agenda. Each agenda item should be able to the last meeting as an opportunity to have the meeting have a policy reference attached to it.16 Board members, replayed for their benefit. That may also be welcomed as they examine the agenda and follow the progress by anyone who was less than happy with decisions made of the meeting, should regularly ask themselves: previously. Beware of this as an opportunity to re-litigate. “What is the policy relevance of this?” If discussion ‘Matters arising’ offers a similar opportunity. If the of other matters is necessary another forum can agenda is properly designed and reports are thorough always be arranged. there is no need for a ‘matters arising’ item. Keep these aspects of the meeting as brief and as formal as possible. Requests for permission Many chief executives are required to seek their board’s Correspondence

permission to carry out this or that operational initiative. in this context includes the strategic plan or similar documentation. ‘Policy’ 16 As a general rule, only correspondence that has direct Such permission-seeking commonly results from one policy implications that the chief executive cannot deal or more of several background conditions: with, or that is addressed to the board in relation to a board policy matter, should come before the board. • the board is, in reality, the operational controller When there is correspondence that the board needs to and the chief executive merely makes suggestions see, the correspondence it receives informs a purposeful which require board approval policy discussion. An item of correspondence that • the chief executive does not have the confidence to deserves the board’s attention should arguably be make his or her own operational decisions and allocated its own place on the agenda. ‘delegates upwards’ seeking board backing as an Staff reports about operational matters insurance policy Staff reports (presented through the chief executive to • the chief executive does not have a clear written the board) targeted to board concerns are essential to delegation and thus is constantly unsure about the inform the board and contribute to the conduct of its boundaries of freedom within which he or she dialogue and debate. Reports that are not targeted to can work and make operational decisions governance responsibilities take away from effective board performance. The principle is simple: the board • while there is a written delegation, the practice of meets to do board business. Reports should always – checking with the board first is so ingrained into the even if dealing with operational matters – be translated board’s and the chief executive’s modus operandi into a governance context, for instance, reporting that it just happens without any question or scrutiny. against board policies and performance measures. That way the board can find governance relevance and use in the reports’ content and keep its eye on the governance ‘ball’.

Flyers, advertising material and other ‘guff’ Because most boards are easily distracted, distributing inconsequential material for consideration at a board meeting simply compounds the problem. It diverts the board from its governance role into irrelevant discussions and meddling in the operational matters that most such material relates to. Some advertising material might be relevant. Advertising about director training or governance development opportunities, for example, relates to the board’s commitment to its own professional development. When this is the case such material should be addressed in the context of a board paper with appropriate analysis and recommendations.

69 Typical agenda 12.4 distractions

Operational decision-making is the chief executive’s traditional reporting that in subject and analysis offers responsibility. This is not to say, of course, that the little assistance to the board in undertaking its governing wisdom and experience of individual directors should role. Far better that, at the board meeting, it receives not be available to the chief executive. But the board a fully analysed financial report from the chief executive meeting is neither the time nor the place for the chief comparing what has happened with what should have executive to be taking soundings about the options happened. More detailed financial data can always be available to him or her. Opportunities should be found made available to individual directors outside the board outside the board meeting, at the chief executive’s meeting if required. initiative, to explore how directors’ wisdom or Presentations irrelevant to governance experience might assist the chief executive to discharge As interesting as some directors may find it to listen to his or her responsibilities. staff or outsider presentations, if there is no direct policy Unnecessary financial reports or broader governance relevance, such presentations Top of this list is the practice of approving payments that should not take up precious board meeting time. have already been made. Once commonplace, the habit This is not to deny the value of briefings that help board of reviewing the ‘cheque schedule’ still dies hard in some members understand how the organisation operates, organisations. As interesting as some of the content may simply to say this is not a productive use of valuable be to some directors, such information is an example of board meeting time.

develop a longer term view 12.5 of the board’s priorities

Once such ‘clutter’ is off the agenda, the board has a • consultation with key stakeholders greater chance of focusing on stakeholder expectations • meeting with the external auditor and securing a sound and prosperous future for the • committee reporting dates, e.g. the audit organisation. To help ensure that a board pays attention committee to those matters that most require its attention it is • signing off the annual report particularly valuable to use an annual agenda. • the policy review schedule. An annual agenda defines well ahead of time the And so on, including dates for significant events specific matters of strategic importance on which the board’s to the organisation. Then it should identify, so far as it time and attention should be focused. The equivalent can, the crucial strategic and policy issues that it should of an annual work programme, this protects the board get on top of during the next 6-12 months. It is possible from meandering from one meeting to the next that the board may need to prioritise this second reacting to whatever has just come up. category of topics so that it can pay proper attention An annual agenda has two components: the tasks to those that are most important. and topics the board must address (e.g. because of legal Both groups of agenda items can then be scheduled or contractual obligations) and those matters that are into a board work plan that determines well ahead of discretionary (e.g. most policy and strategic issues) but specific meetings what will be considered at each meeting. which go to the heart of effective board leadership. Rather than leaving these matters to chance, or To develop such an agenda a board might brainstorm forcing the chief executive to prompt the board to do all of its significant events and duties to be attended its own job, an annual agenda assists the board to think to in the coming the year, allocating a date for each of through and take control of its own business. Such a these to be addressed. Typical items might include: longer-term agenda ensures that the board is committed • preparation for the Annual General Meeting (AGM) to addressing those matters that are essential for effective • the chief executive’s performance appraisal cycle governance. When this is done, matters requiring board and key dates consideration and leadership are less likely to be crowded • board performance review off the agenda by attention-grabbing issues which are • financial reporting often urgent, but hardly important. Scheduling ahead • an annual review of organisational strategy of time in this way does not prevent the inclusion of a • designated dialogue sessions on particular wide range of other matters on a month-by-month strategic issues basis, as required, or as appropriate.

70 develop a longer term view 12.5 of the board’s priorities

A useful tool that can be used by any board to help develop its ability to create an annual agenda is the following ‘time-use matrix’. The best way to use this is Important Important and Urgent and Not Urgent to divide the board into several small groups and ask each to try and agree what percentage of the board’s total time is spent in each of the categories at a typical meeting. Just having the discussion will be the catalyst for a useful conversation about just what is an important use of Not Important Not Important and Urgent and Not Urgent board time. How much of what the board usually deals with is urgent, but not really important. How much is neither important nor urgent? Over time the board should aim to spend an increasing proportion of its time performance review and development, etc.). on matters that are important but not urgent (e.g. Scheduling these into an annual agenda increases the environmental monitoring, strategic thinking, policy- sense of urgency about matters like these that typically making, relationship-building, risk characterisation, have no deadlines attached to them.

board 12.6 committees

An important structural issue that has a great deal to do Committees are needed because of the with the quality of governance in the sector is the role board’s size. and contribution of board committees. It is common When boards become larger than seven or eight practice for governing boards to establish committees members it becomes more difficult to address collectively, to assist them in aspects of their work. Unfortunately, and be decisive about, problematic issues. If a board is unless used effectively, board committees can often of such a size that it is considered necessary to constitute fragment the governance process. This is because a board committees (especially so-called ‘executive committees’) with too many committees is like a machine that has to enable it to do its work properly, it is the board’s too many parts – it breaks down more and is harder excessive size that is the problem. to repair. This is particularly because committee work Committees are needed because of the tends to fragment board members’ sense of the board amount of work needed to be done. as a whole and focuses them on particular, relatively What is the real governance work that needs to be done? narrow aspects of the board’s responsibilities. Those In smaller organisations board members may need to assist who are not members of a particular committee can with the operational activities of the organisation because feel excluded and in the dark. Worse, they can have a there is simply not the paid staff or other resources to diminished sense of responsibility for the conclusions do what has to be done. When committees are set up to of committees of which they are not a member. In order help in such situations, however, it seldom has much to to avoid the inevitable sense of duplication, boards by do with the board’s governance responsibilities. Board and large feel obliged to accept (‘rubber stamp’) committees should not be confused with active work- committee recommendations. This increases the risks groups, which perform basic organisation functions faced by the board as a whole – decisions are not really and whose membership often includes other volunteers board decisions, but committee decisions. and available staff as well as board members. The arguments raised in favour of committees are When it is no longer necessary for board members often directed at solving problems that would be better to act as unpaid staff it pays to be aware that there is dealt with directly. For example: potential to create duplication and confuse accountabilities with staff now employed to do that work. A typical example is when the board ‘treasurer’ continues to report to the board on the organisation’s financial affairs when financial management has been delegated to the chief executive who, in turn employs finance professionals.

71 board 12.6 committees

Committees are needed to overcome • ensured that committees do not exercise authority difficulties resulting from poor over staff. The chief executive works for the board board-level process. as a whole and cannot be expected to obtain the If governance processes are considered poor at the full approval of a committee before an executive action board level it is almost certain that they are just as poor and probably worse at the committee level. The solution • ensured that committees do not overly identify with to this lies in the board’s own hands. For example, particular organisational functions or parts. Many boards should consider whether they have: board committees neatly and deliberately parallel the chief executive’s organisational structure. • delegated sufficiently to their chief executives Boards should do nothing which would encourage (short of jeopardising the board’s own their committees to think that they have their own accountability for organisational performance piece of the chief executive’s organisation to direct and conduct). Delegation, with rigorous themselves. Where, for example, committees focus performance expectations and review, should on the oversight of certain operational activities be pushed to the limit (marketing, programme, property management, • a clear sense of their own role and responsibilities etc.), these can very easily cut across or undermine (preferably well documented) so that they can the chief executive’s responsibilities. pull back from low-level operational activities that A judgement about the establishment of operational simply crowd out strategic direction giving or project committees should be left with the chief • ensured that any committees or task forces are executive who may well set up committees of his or established only to do work that is needed for her own. These could, and often should, involve board governance decisions. Useful work for board members who have special knowledge or who, committees is pre-board work. A committee may, in addition to their governance role, are also willing for example, explore the development and to work on the operational side of the organisation. consideration of alternative scenarios, or undertake In a number of arts boards, however, these two roles preparatory work on policy alternatives to ensure (and the accompanying accountabilities) have become that sufficient information is available for the board confused. This is commented on further in the next section. own as a whole to consider, debate and then make an The board’s job description should be any intelligent decision with. In this process the articulated before committee responsibilities are committee and board jobs are sequential and defined. It should not assume there is a need for any separate. Such work would tend not to require committee. Committees that have been thought to be ‘standing’, or permanent committees, but more vitally important in the past may be unnecessary and of a ‘task force’ type of approach even detrimental. That does not mean there is not a role for board committees. Two examples of committees that • ensured that board committees may not speak for do help a board do its work are: one that deals with audit the board as a whole (protecting the ‘one voice’ and risk management and one that has responsibility to principle) unless they have been formally requested ensure that the board has the membership it needs. to and this does not conflict with authority In summary, the board should only establish delegated to the chief executive) committees that are essential to doing its own work. Board committees should never become involved in tasks that are properly the domain of the chief executive or staff. Following on from the board’s own job description, all board committees should have clear terms of reference defining their roles, expected outputs, boundaries of authority, reporting requirements and membership particulars. They should also have a limited lifespan, to force a regular review of the value of their achievements and the need for their continued existence.

72 the role 12.7 of the chairperson

The most important single factor in achieving (or not) The chairperson is also a board member. a high standard of governance in arts organisations is the A challenge facing all chairs is to know when and how effectiveness of the chair. The chair sets the tone of the to contribute their personal opinions and advice to board and his or her primary role is to provide assurance influence to the substance as well as the process of the of the board’s governance integrity via the effective board’s dialogue. Chairs who manage this challenge management of governance processes. As a secondary effectively often do so by affirming other board responsibility the chair may also represent the board members’ opinions or points of view to register their and its policies outside the organisation. own point of view without it also carrying the weight The chair is bound by the board’s governance and authority of the chair. Because of the authority policies and thus has no authority to unilaterally alter, accompanying the role, taking a strong personal stand amend or ignore the board’s policies. The chair is not the on issues from the chair often discourages other board ‘boss’ of the board. The concept of ‘servant leadership’ members from openly voicing a different point of view. is a more appropriate way of thinking about this role. The chairperson should make sure the While the chair may delegate certain aspects of his or design of the agenda lies with the board. her authority, he or she remains accountable for it. Board meetings are for board members to address An effective chair is the chairperson, governance matters not to be a forum for discussion not the occasional chief executive. of management matters. When the full board designs To hold the chief executive to account for carrying its own work-plan and translates this into an annual out this key role, chairs should refrain from stepping agenda (see Section 12.5), a board is less likely to find over into decisions and responsibilities the board has itself distracted by operational detail or sidelined doing delegated to the chief executive. Chairs that meet little more than reacting passively to management regularly with their chief executive can easily find initiatives. Certainly the chief executive should have themselves becoming the chief executive’s boss or an input to the agenda design but the process should manager, issuing instructions and providing ‘permission’. be led by the chairperson acting on behalf of the board. Even though effective liaison between the two is important, any close working relationship between the The chairperson should encourage open dialogue, not debate. chairperson and the chief executive should not usurp Debate is premised on one side being wrong and the the board’s collective responsibility as the chief other right. It is a contest that often becomes highly executive’s employer. personalised. Debate produces win-lose outcomes. The chairperson should be more of Dialogue, by contrast is a collaboration. Individual a conductor or facilitator and less contributions are subjected to close scrutiny and testing; of a controller. the purpose of this is to produce deeper understanding Because boards, for the most part, are made up of and improved decision making. Effective boardroom mature, self-directed adults, a chairperson should not dialogue makes room for both directors and expect to have to ‘control’ his or her board. The most management to freely express their views, opinions important aspect of the role is to lead a process that and positions knowing that these will form part of gets the best out of board members enabling high quality the overall mix leading to the best possible outcome. decisions to be made. A controlling or highly directive Dialogue produces win-win outcomes. chairperson often creates the circumstances that require controlling. For example, many board members will The chairperson should not allow resist or rebel when faced with a dominating or individuals or a sub-group to dominate the meeting. domineering chair. In contrast, a chair who is more When a board comprises a mix of assertive contributors a facilitator or conductor uses his or her process and and others that are less active contributors, it is easy to relationship management skills to draw the best from allow the former to dominate in the interests of efficiency. the individuals and the group. This type of chair is However, the potential of quieter or less articulate a consensus builder who skilfully links individuals’ directors can easily be underestimated. They are often strengths and experience, guiding the group towards capable of asking the ‘naively intelligent’ or ‘dumb’ good outcomes. question that draws the board’s attention to a fundamental flaw in an argument or to an important matter that has been overlooked. Just because a director is less eager (or less able) to jump into the discussion does not mean that he/she is a poor thinker or has no opinion. A good chair sees beyond over- or under-assertiveness and knows how to draw out from each director their special contribution.

73 board performance 12.8 evalvation

Boards in the arts sector are mostly comprised of Evaluation of the board and, ideally, individual ‘volunteers’ rather than paid directors and for that members as well, should be against objective, pre-agreed reason there is a widespread reluctance to expect too criteria, preferably derived from the board’s own job much of board members’ contributions to board description and other governance policies. One policy, effectiveness. This is a dangerous and false premise. for example, that can be very useful in providing an The challenges faced by arts organisations to survive, appropriate set of performance expectations is a let alone thrive in this country, surely demands the governing style policy. highest possible standards of governance performance Governing Style and effectiveness, both group and individual. Board In its governance processes the board will: members who bring nothing but good intentions to the board table are a luxury few arts organisations can 1. Focus on the future, avoiding being unduly afford. High performing boards experience a ‘virtuous preoccupied with the past and the present. cycle’. They are far more attractive to prospective new 2. Look beyond the boundaries of the organisation board members and do not have difficulty attracting avoiding being preoccupied with internal concerns. and retaining the capabilities they need. Consequently they further improve their effectiveness and become 3. Be proactive rather than reactive. even more attractive. 4. Encourage the expression of a diversity of Also, not unreasonably, there is an increasing trend views and opinions. for funders and sponsors to seek evidence of effective governance in the organisations they are asked to 5. Ensure its time is spent on strategic leadership support to provide assurance that their contributions rather than administrative detail. will be used to best effect. This starts with the board 6. Cultivate a sense of group responsibility making having a clear job description and a shared concept of collective rather than individual decisions. what standards it should set for its own and its individual members’ performance. So long as a board expects 7. Ensure there is a clear distinction between a high, professional standard of performance from governance (board) and operational management and those delivering the artistic or cultural (chief executive, artistic director, staff product of the organisation it should expect no lower and volunteer) roles. standard of performance from itself and its members. Ideally, the annual evaluation process should be Therefore, it should set governance performance conducted on behalf of the board by someone who expectations and review its achievement of these can independently, professionally and confidentially regularly – at least annually. The purpose of any such collect and collate individual board members’ views evaluation is to identify opportunities for the board and on the performance of the board. That person would individual board members to improve their governance collate that information and feed it back to the board, performance over time. facilitating a discussion of the board’s strengths and weaknesses and helping the board to develop a programme for improving its effectiveness. An independently conducted process is even more important where the evaluation process extends, as it should, to the contribution of individual board members. Sample board effectiveness review questions can be obtained from a number of sources but, ideally, the process and format should be tailored to the specific board concerned. The type of questions such a review might address is illustrated on the next two pages.

74 succession 12.9 planning

To maintain vitality and environmental adaptation, Further Reading: a board’s membership must be regularly replenished Jo h n Ca r v e r . Board Self-assessment. with new board members who bring renewed energy CarverGuide No. 8. San Francisco. Jossey-Bass. 1997. and fresh perspectives and ideas. This is made easier Te r r y Kilmister and Gr a e m e Na h k i e s . 17 if there are term limits to serving on the board. ‘Developing an Annual Agenda’. Good Governance A systematic board evaluation process like that No. 11. 4–7. September/October 1999. referred to in the previous section lends itself to integration with a deliberate process of board succession Gr a e m e Na h k i e s and Te r r y Kilmister. planning. A simple tool that can be used is a ‘board skills’ ‘For Better Board Meetings: Turn Your Agenda matrix that assesses current board members against the Upside Down!’ Good Governance No. 47. September/ skills and experience profile the board considers is October 2005. needed to enable to it to meet the challenges facing Gr a e m e Na h k i e s and Te r r y Kilmister. the organisation. This can be thought of as a ‘gap ‘Reviewing the Board’s Performance’. analysis’: what gaps in capability do we have and Good Governance No. 7. January/February 1999. what sort of people should we look to recruit? Pe t e r Sz a n t o n . Evaluation and the Nonprofit Board. Each board should, therefore, have a process for Washington DC. National Center for Nonprofit Boards succession planning that addresses the selection and Governance Series No. 10. 1998. replacement of board members whether elected or appointed, and for office holders like the chairperson. Discussion Topics This does not necessarily mean identifying named 1. Does the board make good use of its meeting time, individuals and or ‘lining up’ particular individuals. ensuring that its focus is on topics that are In fact, such an approach may be quite contrary to the important and constitute a worthwhile use values and democratic process within an organisation. of the board’s time? It may even create distrust if there was a sense that the board was trying to manipulate the process to populate 2. Does the board design its own agenda, preferably the board with its own acquaintances. on a longer-term, annual basis? Nevertheless, there are advantages all round if 3. Does the board set standards for its own those appointing or electing new board members are performance and assess itself against those kept well informed by their board about its strengths expectations at least annually? and weaknesses, the challenges it is facing, and the board’s thinking about the type of skills and experience 4. Is this linked to a systematic success it thinks would be the most useful. planning process? Not every board will be able to immediately enlist 5. Are there clear expectations for the performance the services of the people it has identified who might of the chairperson? be elected or appointed if they were available. In some other sectors (e.g. sport and recreation) organisations 6. Is the work done in committees (if any) focused have found effective ways to engage well qualified on the board’s governance responsibilities or does people in the governance process who are not (yet) this relate more to operational functions? willing or available to join the board. In one national There is no right answer to how long someone should serve on a board. However, experience and observation would suggest that individuals should be able to realise the greater part to realise individuals should be able experiencesuggest that of their potential to and observation would However, long someone should serve on a board. to how is no rightThere answer 17 contribute within 10 years. Longer service than that may create a dependency on the long serving individual and quite possibly discourage potential board members from stepping up. a dependency on the long serving create discourage potential board members Longer service stepping up. from may individual and quite possibly than that contribute within 10 years. sports organisation, for example, a ‘chair’s group’ is convened once or twice a year to bring together potential future governors of the organisation. The purpose is to have these people contribute to the governance ‘brains trust’ and, at the same time, to give them a taste of the governance role. This will hopefully encourage them to become part of a pool of potential future board members. The bottom line here is that the board should not leave its future membership to chance. It owes to its stakeholders good stewardship and that includes a succession process that ensures the organisation’s fate is in competent and well motivated hands.

75

sample board evaluation form18

Totally Totally Totally Totally agree Agree Disagree Disagree agree Agree Disagree Disagree

1. Board members have the skills 19. Board members leave 1 2 3 4 and experience needed to 1 2 3 4 meetings with a collective provide effective governance sense of achievement. of this organisation. 20. The difference between governance and management/ 2. The board’s standards of 1 2 3 4 achievement in governance are artistic direction, roles and as high as it expects of the 1 2 3 4 responsibilities is clear. organisation’s artistic achievement. 21. The board has a clear idea of what information it needs. 1 2 3 4 Regularly Occasionally Never 22. The information received by the board is in a form that allows 3. The board reviews its 1 2 3 governance performance. all board members to fully 1 2 3 4 comprehend the organisation’s 4. The board undertakes activities situation and performance. designed to improve its own 1 2 3 governance performance. 23. The board has explicitly stated its performance expectations of the chief executive 1 2 3 4 Totally Totally (and any other staff appointed agree Agree Disagree Disagree directly by the board). 24. The board conducts a formal 5. The board has adopted explicit performance evaluation of the statements that spell out such chief executive and any other 1 2 3 4 matters as the organisation’s 1 2 3 4 staff it appoints directly at least purpose, values, strategic once per year. direction and priorities. 25. Once policies and strategic 6. The board consults to understand direction are agreed, the board their perspectives and to obtain leaves the chief executive their opinions about the and staff to go about their 1 2 3 4 organisation’s direction and business free from intrusion performance with: 1 2 3 4 or interference. (a) ‘owners’19 (b) other key stakeholders (e.g. sponsors, funders).

7. The board has a clear understanding of the part it must play in the 1 2 3 4 success of the organisation. 8. The board has adopted policies that spell out its own role and responsibilities, and define how it 1 2 3 4 will operate (e.g. job description, code of conduct, etc). 9. The board has clearly expressed the key outcomes or results it 1 2 3 4 expects the organisation to achieve. 10. The board formally and effectively assesses and evaluates the risks 1 2 3 4 facing the organisation. 11. The chief executive’s compliance with the board’s expectations and 1 2 3 4 policies is monitored regularly. 12. The board has clear criteria for deciding which matters 1 2 3 4 justify its time and attention. 13. The board has a comprehensive orientation programme that assists new board members to 1 2 3 4 become full contributors as soon as possible. 14. Board meetings focus on longer-term policy and 1 2 3 4 strategic issues. 15. The board provides proactive leadership and direction to 1 2 3 4 the organisation. 16. Board meetings are conducted so that each member is able to share fully in discussion 1 2 3 4 and decision-making. 17. Conflicting views within the board are aired openly and dealt 1 2 3 4 with effectively. 18. In board deliberations members focus on the interests of the 1 2 3 4 organisation as a whole. This is by no means a complete survey but should provide a starting point for a board should provide no means a complete survey but This is by wish to extend their boards that For which process. wishes to start a review find the best practice may variables effectiveness assessment to other governance 11 (September–October 1999) useful. No. guide in Good Governance or others organisations ‘parent’ members, means shareholders, ‘owners’ The term than legally. rather if morally even interest an ownership to have be considered who may 18 19

76 resource materials section13

The following books, periodicals and web sites are suggested as starting points for those who wish to study the process of governance in more depth. Many of the issues facing arts boards are similar to those having to be addressed by governing boards in other sectors, commercial, governmental and not-for-profit.

77 books 13.1

Since the first edition of Getting on Board there has Brown, Jim. been a profusion of new publications on corporate The Imperfect Board Member: Discovering the Seven governance relating to both the commercial and not- Disciplines of Governance Excellence. for-profit sectors. The following list retains many listed San Francisco: Jossey-Bass Publishers, 2006. in the original publication and new entries. Some of ISBN 10-07879-8610-0. the older publications may not be so easy to access One of the best and most readable introductions to but are still recommended if obtainable. what good governance is all about. Particularly useful Bosch, Henry. in distinguishing roles and responsibilities – the different The Director at Risk: Accountability in the Boardroom. roles people play in the type of organisations that are Melbourne: Pitman Publishing, 1995. the focus of this publication. ISBN 0-7299-0325-7. Carter, Colin B. and Lorsch, Jay W. Many recent books on corporate governance had their Back to the Drawing Board. genesis in the growing concern of directors around Boston: Harvard Business School Press, 2004. the world to protect themselves. A very experienced ISBN 1-57851-776-1. executive and company director, Bosch explores the Argues strongly for the board to take control of its job demands on directors to apply more diligence and skill design. A commercial company orientation does not than was historically expected and suggests a variety get in the way of the provision of advice that would of very practical ways in which this can be done. serve most arts boards very well.

Carver, John. Boards That Make a Difference. San Francisco: Jossey-Bass Publishers, 2006. ISBN 10-0787976164. The third edition of Carver’s original exploration of board effectiveness issues and the description of his Policy Governance® model. A good discussion of typical boardroom challenges.

Carver, John and Miriam M. Reinventing Your Board. San Francisco: Jossey-Bass Publishers, 2006. ISBN 10-0787981818. This revised edition is a practical, step-by-step guide for the implementation of John Carver’s Policy Governance® model. The Carvers provide practical examples of the model at work and a set of model policies.

Carver, John and Oliver, Caroline. Corporate Boards that Create Value: Governing Company Performance from the Boardroom. San Francisco: Jossey-Bass Publishers, 2002. ISBN 0-7879-6114-0. This jointly written Carver publication focuses on the application of policy governance concepts to the commercial sector. It is perhaps an even more useful book than Reinventing Your Board and some of the basic policy governance concepts are easier to follow.

0782 13.1 books

Chait, Richard P; Holland, Thomas P. Fletcher, Kathleen. and Holland, Barbara E. The Policy Sampler: A Resource for Nonprofit Boards. Improving the Performance of Governing Boards. Washington: BoardSource, 2000. American Council on Education. ISBN 978 1586860004. Phoenix, Arizona: Oryx Press, 1996. This resource provides more than 70 sample board ISBN 1-57356-037-5. policies and job descriptions collected from a wide Based primarily on an in-depth study of boards in variety of US not-for-profit organisations. The user’s tertiary education, this book provides an analysis of guide provides a basic overview for each of the policies. boardroom performance and suggests developmental A diskette contains the full selection of sample policies approaches. Of particular interest, and seldom and job descriptions that can be easily customized addressed by other authors, is a discussion of effective to suit each organisation. ways of overcoming resistance to board performance Garratt, Bob. development initiatives. The authors offer a very The Fish Rots from the Head: The Crisis in Our Boardrooms: practical and widely applicable analysis of boardroom Developing the Crucial Skills of the Competent Director. performance issues. London: HarperCollinsBusiness, 1996. Chait, Richard P; Ryan, William P. ISBN 0-00-255613-8. and Taylor, Barbara E. One of the original writers on the subject of the Governance as Leadership: Reframing the ‘learning organisation’, Garratt applies these concepts Work of Nonprofit Boards. to the work of the board. Starting from the premise that New Jersey: Wiley, 2004. the great majority of directors have no training for the ISBN 10-0471684201. job, Garratt attempts to clarify and integrate the roles Informed by theories that have transformed the and tasks of the board and its members. In particular practice of organisational leadership, this book sheds he emphasises the need to learn new thinking styles new light on the traditional fiduciary and strategic to apply to the intellectual activity of governing. work of the board. It is most useful for introducing Hilmer, Frederick G. a critical third dimension of effective trusteeship: Strictly Boardroom: Improving Governance to Enhance generative governance. Company Performance. 2nd ed. Charan, Ram. Melbourne: Information Australia, 1998. Boards at Work: How Corporate Boards Create ISBN 1-86350-249-1. Competitive Advantage. This report of an independent working party into San Francisco: Jossey-Bass Publishers, 1998. corporate governance (originally published in 1993) ISBN 0-7879-1060-0. as published in response to a concern that boards, in the Do you want to change the way your board works? wake of the corporate crashes of the late 1980s and early Packed with insights into the dynamics of how boards 1990s, were becoming too defensive. This book offers operate, the central theme of the book is an exploration a perspective that urges directors to get the conformance of the question: How can organisations unlock the and performance aspects of their work into a better intellectual power of the board? Charan takes a balance with a view to creating real value growth for comprehensive and pragmatic look at how boards shareholders. Recent corporate collapses make this can leverage their members’ collective knowledge analysis more relevant than ever. and judgement through open, candid discussion. Ingram, Richard T. Charan, Ram and Kenny, Roger. Ten Basic Responsibilities of Nonprofit Boards. 3rd ed. E-Board Strategies: How to Survive and Win. Washington DC: BoardSource, 2003. New York: Boardroom Consultants, 2000. ISBN 978 1876550004. ISBN 0-615-11524-1. A newly revised edition explores what the author has This is a very good book about small ‘activist’ specified as the 10 core areas of board responsibility boards. It has a commercial focus but is useful including determining mission and purpose and ensuring across many situations. It has relevance for small effective planning. Reflects US expectations of not-for- start-up cultural ventures. profit board members such as participating in fund- raising that may not be so pertinent in New Zealand. Nevertheless a useful reference and of some assistance in drafting job descriptions, assessing board performance and orienting board members on their responsibilities.

79 13.1 books

Keil, Geoffrey and Nicholson, Gavin. to that which they may have experienced in, say, Boards that Work. manufacturing or other commercial sectors. Sydney: McGraw-Hill, 2003. It pays particular attention to debunking certain popular ISBN 0-074-71237-3. myths about the organisational cultures and governance Built around the concept of a board charter which disciplines of arts sector organisations. would be beneficial to many organisations, this covers Nadler, David A; Behan, Beverly A governance roles, processes, key board functions and and Nadler, Mark B. (Eds.). opportunities for continuing board improvement. Building Better Boards. Its commercial organisational focus does not detract San Francisco: Jossey-Bass, 2006. from its practical usefulness. ISBN 10-0 -7879-8189-X. Klein, Sabrina. This is a practical book containing many ideas from The Art of Serving on a Performing Arts Board. the authors’ consulting practices. It is very performance San Francisco: Theater Bay Area, 1998. oriented and covers topics such as chief executive ISBN 0-9605896-9-4. performance evaluation not often dealt with in The author is the executive director of Theater Bay similar publications. Area a non-profit member service organisation whose Oliver, Caroline (Ed). mission is to unite, strengthen and promote theatre The Policy Governance Fieldbook: Practical Lessons, in the San Francisco Bay area. It provides a range of Tips and Tools from the Experiences of Real-World Boards. resource material including this publication, which San Francisco: Jossey-Bass Publishers, 1999. was prepared specifically for those interested in, or committed to, serving as board members of performing ISBN 0-7879-4366-5. arts organisations. Rather than being a ‘how to’ book, This book is not about governance in the broader it aims to highlight why serving on a performing arts sense but is focused purely on the application of John ® board is different from serving on the boards of other Carver’s Policy Governance model. Readers looking types of service organisations. In particular it addresses for a general discussion about governance per se will be areas of common contention and confusion between disappointed. However anyone who wants to read about artists, arts managers and their boards of directors. Carver’s model, but in someone else’s words, will find the book to be very readable and, as its title promises, Leblanc, Richard and Gillies, James. eminently practical. Beginning with an explanation Inside the Boardroom. of the philosophy underpinning policy governance, Mississauga, Ontario: Wiley, 2005. The Policy Governance Fieldbook explores the various ISBN 10-0-470-83520-6. corners of the model with practical real-life examples This book is based on empirical work within a and tips for implementation. boardroom setting and focuses on boardroom dynamics. Shultz, Susan F. It provides many insights into directors’ behaviour The Board Book. and is particularly useful for its chapter on the chair New York: American Management Association, 2001. of the board. ISBN 0-8144-0549-5. Leighton, David and Thain, Donald. The sub-title to this book is Making Your Corporate Board Making Boards Work: What Directors Must Do to Make a Strategic Force in Your Company’s Success. Based in the Canadian Boards Work. United States and focused on the commercial scene this Whitby, Ontario: McGraw-Hill Ryerson, 1997. is nevertheless a very worthwhile book for not-for- ISBN 0-07-552834-7. profit arts boards. It deals comprehensively with a wide This is a most comprehensive and thorough variety of boardroom performance issues. Among examination of critical features of effective governance. these, matters seldom touched in other ‘board books’, The combination of case studies and an exploration such as board recruitment, are addressed in a thorough of the structures, systems and processes leading to and practical manner. best practice governance make this one of the best Tropman, John E and Elmer J. books currently available. Nonprofit Boards: What to Do and How to Do It. McDaniel, Nello and Thorn, George. Washington DC: CWLA Press, 1999. Arts Boards: Creating a New Community Equation. ISBN 0-87868-694-0. New York: Arts Action Issues, 1994. This is a practical and sensible book for a not-for- ISBN 1-884345-03-4. profit board. It explains governance concepts An excellent introduction to addressing governance and practices well and provides a variety of useful challenges in the arts sector, this is the book that will tools and applications. help your ‘lay’ board members understand why artistic enterprises may require a somewhat different approach

80 13.2 periodicals

Board Leadership Good Governance Edited by John Carver this United States oriented Published by BoardWorks International this bi-monthly bi-monthly magazine focuses on the implementation subscription journal is designed specifically to assist of Carver’s Policy Governance® model. Subscription governing boards in all sectors to understand their details are available from Jossey-Bass Publishers, governance role and to provide practical guidance that San Francisco or the Carver web site (see below) will help them to develop their performance over time. Unlike most other readily available governance resources, Board Member based on the publishers’ consulting practice, this has A monthly periodical produced by the National Center a strong Australasian focus. Many of the issues referred for Nonprofit Boards (US). It is a somewhat ‘glossier’ to earlier in this guide are explored in greater depth production than others referenced but carries along with practical tools and techniques. interesting and useful material including, from time to time, items concerning the arts sector. It is of particular For a complimentary sample copy, details of the content interest for its use of a wide variety of case studies and is of past issues and subscription details contact BoardWorks available from the NCNB via their web site (see below). International’s Wellington office (+64 4 569 3447). The journal is also available via the BoardWorks Board Café International web site (www.boardworksinternational.com). This monthly ‘electronic’ newsletter is available free from Blue Avocado (www.blueavocado.org). Said to be short enough to read over a cup of coffee (hence the title) it generally features a main article on a topic of practical interest to not-for-profit boards. er h is F oung readers engage indy Y wit h illustrator L estival 2008 F estival S torylines at

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81 13.3 web sites

BoardSource (formerly the National Free Toolkit for Boards Center for Nonprofit Boards) (www.managementhelp.org) (www.boardsource.org). This site provides links to various resources, often Although focused on the governance of not-for-profit including articles and specific board effectiveness tools. organisations this US-based site has much to offer It is a useful inventory of resources focused on the anyone interested in improving governance not-for-profit sector. effectiveness. Of particular value for quick access to Dreeszen, Craig. Fundamentals of Board advice on particular issues is the comprehensive and Development. University of Massachusetts well-archived FAQ (frequently asked questions) section. (www.umass.edu/aes) From this section, for example, it is possible to pull down sample job descriptions for board officers that Policy Governance would be of immediate practical application. (www.carvergovernance.com) BoardSource is a prolific publisher of ‘hard copy’ John Carver’s web site advocates the use and application support materials for boards and their senior executives of Carver’s Policy Governance® model. It often has and these can be purchased via the site’s bookstore. at least one substantive article on a governance It has produced, for example, a 10-booklet governance performance issue which can be downloaded without series, which includes such titles as ‘Creating Strong charge. Of particular value is the opportunity to observe Board-Staff Partnerships’ and ‘How to Help Your Board or even join in the debate on particular governance Govern More and Manage Less’. BoardSource also issues that have been raised by site visitors. The site also publishes a monthly magazine and a selection of articles provides information on Carver’s publications and the is available online. Of particular interest are the real-life courses and seminars he runs on policy governance. case studies that are reported in the magazine. Past issues have included illustrations from the arts sector.

BoardWorks International (www.boardworksinternational.com) Closely associated with Creative New Zealand’s governance initiatives, BoardWorks International is a specialist governance effectiveness consulting group with personnel throughout New Zealand. This site includes a range of material for those interested in boardroom effectiveness including information on the specialist publication Good Governance.

Blue Avocado (www.blueavocado.org) This site is the source of the electronic newsletter targeted to members of nonprofit boards formerly called Board Café. It has been published monthly since November 1997 and is made available by e-mail without charge. A subscription form and back issues can be accessed from links within this site. While some material is specifically relevant to the United States, much is of wider interest and application.

82 Getting on Board: A governance resource guide for arts organisations 3rd Edition _ ISBN 978-0-478-18557-7 _ March 2009 _ 1000 copies printed Prepared by Graeme Nahkies for Creative New Zealand _ www.creativenz.govt.nz Designed by www.samdog.co.nz